Estate of HERBERT N. BANERJEE, Deceased.
KENNETH CORY, as State Controller, Petitioner and Appellant,
v.
BANK OF AMERICA, Objector and Respondent.
Supreme Court of California.
*529 COUNSEL
Myron Siedorf, Edwin Rosenthal and James R. Birnberg for Petitioner and Appellant.
Jordan, Walsh, Lawrence, Dawson & Carbone, Donald J. Lawrence and Michael P. Carbone for Objector and Respondent.
Almon B. McCallum and Marc Isaacson as Amici Curiae on behalf of Objector and Respondent.
OPINION
THE COURT.
We granted a hearing in this case to resolve a conflict between Court of Appeal opinions in this and an earlier case. After an *530 independent study of the issue, we have concluded that the careful and scholarly opinion of Judge Lazarus (assigned) for the Court of Appeal, First Appellate District, in this case correctly treats the issues, and we adopt it as our opinion. That opinion, with appropriate deletions and additions,[*] is as follows:
The State Controller appeals from an order of the superior court sustaining objections filed by respondent Bank of America, N.T. & S.A., as ancillary administrator of the estate of Herbert N. Banerjee, a deceased nonresident alien, to the report of the inheritance tax appraiser. The tax would have amounted to $64,078 if the report had been approved. The effect of the order sustaining the objections was to reduce the estate's maximum tax liability to the sum of $2,741.
Which of these two figures is correct depends entirely on the question as to whether certain stock certificates for shares belonging to decedent in non-California corporations[1] of an aggregate value of $931,279.13 should have been included as taxable items. These stock certificates together with other assets were held for decedent by the Bank of America at San Francisco in an investment management account. The administrator contends that the stоck certificates representing shares in companies incorporated under the laws of other states are expressly excluded from taxation by the provisions of Revenue and Taxation Code section 13303, subdivision (b). The Controller insists, on the other hand, that the statute has been misread by both respondent and the court; hence, this appeal in which the only issue is as to the jurisdictional reach of section 13303.
A brief summary of the specific facts upon which this dispute is predicated follows.
Decedent was a resident and national of Japan at the time of his death, September 12, 1972. Starting in 1962, he established and maintained an investment management agency account with the Bank of America in San Francisco. When he died, his portfolio included the following assets, all of which were more specifically listed and described in the inventory and appraisement filed in the probate proceeding:
*531
Cash: (bank accounts, certificates of deposit, etc.) $512,626.89
Stocks held in said agency account:
(a) "California stocks," that is, stocks of corporations
incorporated in California or having their principal
places of business in California оr doing the major part
of their business in California:
Bankamerica Corporation $62,040.50
Lockheed Aircraft Corp. 1,962.50
Safeway Stores, Inc. 30,150.00
__________
94,153.00
(b) Remaining stocks in agency account, consisting of
stocks of corporations incorporated in other states of
the United States or having principal places of business
other than California or not doing the major part of
their business in California ("non-California stocks")
931,279.13
_____________
Total $1,538,059.02
Respondent concedes at the outset that the "California stocks" referred to in paragraph (a) above were subject to inheritance tax, and that the estate was further liable to pay any "pickup" tax equal to the state tax credit allowed decedent's estate in its federal estate tax return. The objections which were filed by the administrator were therefore only directed to the report insofar as it included in its calculations a tax on the "non-California stocks" mentioned in paragraph (b). The hearing thereon was held before the Honorable Paul E. Springer, court commissioner, sitting as judge pro tem., by stipulation of the parties. After considering evidence both oral and written, he rendered the decision from which this appeal has been taken.
I
(1a) The outcome of this appeal therefore hinges upon how the language of Revenue and Taxation Code section 13303 is to be interpreted. In its present form, that section reads: "`Estate' or `property' means the real or personal property or interest therein of a decedent or *532 transferor, and includes all of the following: [¶] (a) All intangible personal property of a resident decedent within or without the State or subject to the jurisdiction thereof. [¶] (b) All intangible personal property in California belonging to a deceased nonresident of the United States, including all stock of a corporation organized under the laws of California or which has its principal place of business or does the major part of its business in California or of a federal corporation or national bank which has its principal place of business or does the major part of its business in California, excluding, however, saving accounts in saving and loan associations operating under the authority of the Division of Savings and Loan or the Federal Home Loan Bank board аnd bank deposits, unless such deposits are held and used in connection with a business conducted or operated, in whole or in part, in California." (Italics added.)
The disagreement between the parties focuses on the meaning and effect to be given to the phraseology appearing in italics. Respondent argues that we must follow the Latin maxim, expressio unius est exclusio alterius[2] in interpreting the statute. This being so, the contention goes, the section can only be read as imposing a tax on stock issued by the kind of corporations mentioned after the word "including," thereby excluding from state taxation stock certificates issued by other corporations, no matter where the certificates evidencing the ownership thereof may be physically located.
This, according to the Controller, is a misconception. He reasons that the first part of subdivision (b), providing that "[a]ll intangible personal property in California belonging to a deceased nonresident of the United States" is subject to tax, manifestly includes stock certificates, and that its import is in no way limited or otherwise diminished by anything said in the clause that follows.
We find no authority directly in point except what was said in thе course of an opinion by a divided court [] [in] Estate of Hall (1977)
This appears to be clearly contrary to what has been said to be the law by higher authority. Estate of McCreery, supra,
McCreery was a resident and citizen of Great Britain who died testate in 1931. His estate was probated in England, but there were ancillary proceedings here as he owned stock in a corporation organized under the laws of this state. The certificates of stock for these shares were also physically located in California and were listed as assets of his estate in the inventory in the ancillary probate proceedings. The report of the inheritance tax appraiser included a tax on these shares. The report was at first confirmed by the court, but this order was thereafter reversed by the trial court on application of the respondents. The appeal by the Controller was from the latter order. (Estate of McCreery, supra, 220 Cal. at pp. 27-28.) One of the issues in that case was as to whether the due process clause of the Fourteenth Amendment to the federal Constitution prevented California from collecting an inheritance tax on stock of a California corporation in the estate of a nonresident of the United States, *534 the certificates representing the stock also being physically located in California.[5] (Id., at p. 28.)
The court noted that "as to intangibles the courts still apply the legal fiction of mobilia sequuntur personam and have thus confined the place of taxation to the state of the domicile of the owner. But this restriction has as yet been applied only to estates of decedents who were residents within the United States.[[6]] (Farmers Loan Co. v. Minnesota,
Leaning heavily on the ratio decidendi of the Supreme Court of the United States in Burnet v. Brooks, supra,
Elsewhere, Burnet had this to say: "The argument is pressed that the reference tо situs must, as to intangibles, be taken to incorporate the principle of mobilia sequuntur personam and thus, for example, that the bonds here in question though physically in New York should be regarded as situated in Cuba where decedent resided. But the Congress did not enact a maxim. When the statute was passed it was well established that the taxing power could reach such securities in the view that they had a situs where they were physically located." (Burnet v. Brooks, supra,
Respondent attempts to avoid the effect of the principles set forth in McCreery on two grounds: first, because it is claimed that the language quoted from that case was largely dicta and should be disregarded because the main issue there was one of constitutionality rather than statutory construction. But the obvious answer is that the McCreery court would never have reached the constitutional question unless it first decided the issue as to whether the territorial location of the stock and stock certificates established a sufficient nexus for taxation by the State of California.
*536 Another contention is that this case should be distinguished from McCreery because [] the stock certificates owned by McCreery had been issued by a California corporation. This objection overlooks the fact that McCreery adopted verbatim the rationale upon which Burnet upheld a tax on securities that included a stock certificate for shares issued by a Cuban corporation held for decedent (a resident of Cuba) by his son in New York. [] [We also note McCreery's statement] that where the decedent resides abroad either the "actual or constructive" situs of intangibles may be a proper place for tax assessment. (Estate of McCreery, supra, 220 Cal. at pp. 29-30.) (2) Hence, we conclude that when McCreery was decided it became the law of this state that "the legal fiction of mobilia sequuntur personam" was no longer a criterion for determining the power of the state to tax intangibles owned by nonresidents of the United Statеs.
This also appears to have been the understanding of the Legislature when one year later it enacted the Inheritance Tax Act of 1935 (Stats. 1935, ch. 358, § 1, p. 1266),[7] from which the present form of section 13303 is derived.
Before the adoption of the Inheritance Tax Act of 1935, "estate" and "property" were defined merely as "real and personal property or interest therein" including "all personal property within or without the state or subject to the jurisdiction thereof; ..." (Stats. 1925, ch. 284, § 1, p. 472.) Thus, no distinction was drawn originally between the property owned by residents or nonresidents of the United States and there was no mention of intangibles.[8]
This wаs changed by section 1, subdivision (2) of the Inheritance Tax Act of 1935, which defined "estate" and "property" as used in the act to mean "real and personal property or interest therein" including "all intangible personal property of resident decedents within or without the State or subject to the jurisdiction thereof, and all stock of California *537 corporations, and Federal corporations or National banks with their principal places of business in California, and all other intangible personal property in California belonging to the estate of a deceased nonresident of the United States; ..." (Stats. 1935, ch. 358, pp. 1266-1267.)
(3) "`It is a generally accepted principle that in adopting legislation the Legislature is presumed to have had knowledge of existing domestic judicial decisions and to have enacted and amended statutes in the light of such decisions as have a direct bearing upon them. [Citations.]' (Buckley v. Chadwick (1955)
It was therefore no coincidence that the Legislature made important changes in the statute with regard to intangible personal property belonging to nonresidents of the United States shortly after the McCreery decision. It is reasonable to assume that the amendments were prompted by that decision, and that in enacting the predecessor to section 13303 the Legislature intended "all other intangible personal property in California belonging to the estate of a deceased nonresident of the United States" to include stock certificates physically present in California.
II
Our final inquiry therefore is as to whether the Legislature intended to abrogate the principles established by the ruling in the McCreery case insofar as they may apply to stock certificates when it adopted section 13303 of the Revenue and Taxation Code in its present form. That section was added to the code in 1943, then providing as follows: "`Estate' or `property' means the real or personal property or interest therein of a decedent or transferor, and includes all of the following: [¶] (a) All intangible personal property of a resident decedent within or without the State or subject to the jurisdiction thereof. [¶] (b) All stock of a California corporation, or of a Federal corporation or National bank which has its principal place of business in California, and all other intangible personal property in California belonging to a deceased nonresident of the United States." (Stats. 1943, ch. 658, § 1, p. 2297.)
*538 In 1956, subdivision (b) was amended to read as follows: "(b) All stock of a California corporation, or of a Federal corporation or National bank which has its principal place of business in California, and all other intangible personal property in California belonging to a deceased nonresident of the United States, except bank deposits, unless such deposits are held and used in connection with a business conducted or operated, in whole or in part, in California." (Stats. 1956, ch. 3, § 1, p. 121.) Thereafter in 1963, subdivision (b) was again amended. That version is the present form of the subdivision.[9]
McCreery, as has been seen, decreed that henceforth the situs of intangibles would be the factor that controls jurisdiction to tax in the case of a decedent domiciled outside territorial limits of the United States. This ruling was implemented by the Legislature in 1935 by expressly subjecting intangibles owned by foreign residents to taxation. In its present form, subdivision (b) of section 13303 now starts out by imposing a tax on "All intangible personal property in California belonging to a deceased nonresident of the United States, ..." (Italics added.) Regulation 13303(d) defines "intangible personal property" as including "stocks, bonds, notes (whether secured or unsecured), bank deposits, accounts receivable, patents, trade-marks, copyrights, good will, partnership interests, life insurance policies, and other choses in action." (Cal. Admin. Code, tit. 18, reg. 13303(d).)
(1b) But the argument is pressed here that we should apply the familiar maxim expressio unius est exclusio alterius, and thus construe the clause that follows the language we have quoted from subdivision (b) of section 13303 as an expression of intent to exclude all other "stocks" not specifically mentioned in the following clause. We apprehend from the intended decision that this argument was decisive in the trial court. It is one, however, that from our more advantageous position on appellate review we are unable to accept.
The problem of interpretation, it seems to us, would have been less complicated if the parties had not overlooked the distinction between "shares" or "stocks" on the one hand, and the indicia of ownership such as "share certificates" or "stock certificates" on the other. Both have value and are considered to be persоnal property, but of a different kind. (4) "A share of stock is the interest which the shareholder has in the *539 corporation." (6 Witkin, Summary of Cal. Law (8th ed. 1974) Corporations, § 110, p. 4403.) (5) On the other hand, "[a] certificate of stock is the evidence of the ownership of the shares represented by it." (Id., op. cit., § 112, p. 4405.)
"`To the general understanding and with the common meaning usually attached to such descriptive terms, bonds, mortgages and certificates of stock are regarded as property. By state and federal statutes they are often treated as property, not as mere evidences of the interests which they represent.'" (Burnet v. Brooks, supra,
Keeping the separate character of the two types of property in mind, when section 13303 mеntions "all stock of a corporation organized under the laws of California, or which has its principal place of business or does the major part of its business in California," this obviously refers to the actual stock that a shareholder owns in a California corporation as shown by the corporate books and records, not to the certificates representing such ownership.
(6) It is true that the canon of construction upon which respondent rests its case should be applied "where appropriate and necessary to the just enforcement of the provisions of a statute." (Blevins v. Mullally (1913)
We note also that the introductory word to the clause in controversy (subd. (b) of § 13303) is the word "including." This is not ordinarily understood as expressing an intent to limit, or to create an exception. Its dictionary meaning is: to have as part of a wholе; to take into account, put in a total category, etc.
We are not alone in our interpretation of section 13303, subdivision (b). The understanding of the meaning of the language used in that section by the authors of an article in a recent text published by the California Continuing Education of the Bar is exactly the same as our own. "Special statutory rules regarding situs apply to intangibles owned by nondomiciliaries of the United States. These rules turn on the nature of the intangible itself. In general, intangible personal property owned by a deceased nonresident of the United States is subject to tax by California if the evidence of ownership, or its issuer, is located in California. Rev & T C § 13303(b); Reg. § 13303(c)(3)(B). [¶] If the indicia of ownership of these intangibles, such as stock certificates or promissory notes, are physically located in California, they are subject to inheritance tax. See Estate of McCreery (1934) 220 C 26,
*541 Respondent directs this court's attеntion to subdivision (a) of section 2104 of the Internal Revenue Code of 1954 (26 U.S.C. § 2104(a)) which now provides, "For purposes of this subchapter shares of stock owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States only if issued by a domestic corporation."[11] This subdivision, however, is obviously of no aid in ascertaining the intent of the California Legislature in 1935, at which time the predecessor to section 13303 was enacted. [] [End of Court of Appeal opinion.]
To the extent it is contrary to the views herein expressed, Estate of Hall, supra,
The judgment is reversed and the cause is remanded with directions to set aside the order sustаining the objections to the report of the inheritance tax appraiser, and to take further proceedings in conformity with this opinion.
Respondent's petition for a rehearing was denied July 13, 1978.
NOTES
Notes
[*] Brackets together, in this manner [], are used to indicate deletions from the opinion of the Court of Appeal; brackets enclosing material (other than the editor's parallel citations) are, unless otherwise indicated, used to denote insertions or additions by this court. (Estate of McDill (1975)
[1] "Non-California corporations" are corporations not organized under the laws of California оr which do not have their principal place of business or do the major part of their business in California.
[2] Mention of one thing implies the exclusion of another thing. For an explanation of the practical effect of the maxim in instances in which it may be applicable, see Estate of Pardue (1937)
[3] The decedent in Hall was a resident of France. She died leaving an unexercised power of appointment over a testamentary trust in her predeceased husband's estate. It included stock certificates in non-California corporations kept in a safe deposit box in Los Angeles where the husband lived. The trial court's finding that the stock certificates did not have a California situs and were not otherwise taxable under section 13303, subdivision (b), was affirmed on appeal.
[4] All of the cases cited in the opinion in Hall in support of this statement were decided before the rule in California was changed by Estate of McCreery (1934)
[5] The McCreery court rejected the constitutional argument that the tax would discriminate against subjects of Great Britain in violation of treaty obligations inasmuch as the tax is also аpplicable to United States citizens domiciled abroad. (220 Cal. at pp. 30-31.)
[6] A constitutional controversy arose as to whether two or more states could tax the same intangibles. It was resolved in 1939 when the Supreme Court of the United States held in Graves v. Elliott (1939)
[7] This was one of seven major inheritance tax laws adopted by the Legislature starting with the act of 1893. In 1943, the act of 1935, as amended, was codified as part of the Revenue and Taxation Code under the title "Inheritance Tax Law." (Stats. 1943, ch. 658.) It has been the policy of the courts "to construe the several inheritance tax statutes, whether general revisions or merely amendments, as continuous in effect and as expressions of a general plan of taxation." (23 Cal.Jur.3d, Death and Gift Taxes, § 6, p. 418.)
[8] As above indicated, under the jurisdictional rules followed before McCreery the maxim mobilia sequuntur personam applied to intangibles, no matter where they were physically located. (23 Cal.Jur.3d, Death and Gift Taxes, §§ 9-13, pp. 425-432.)
[9] Both parties agree that the 1963 amendment was merely a technical change to clarify the meaning of "California corporation" as that term was originally used in the Inheritance Tax Act of 1935.
[10] The rule is inapplicable: where no manifest reason exists why other persons or things than those enumerated should not be included and thus exclusion would result in injustice (Blevins v. Mullally, supra,
[11] Respondent quotes from the House Committee report on section 2104: "Under present law stock held by nonresident aliens is treated as property situated in the United States if it is stock of a domestic corporation regardless of where the certificates are located, and if it is stock of a foreign corporation, if the certificates are located in the United States. [¶] Under the bill only the first of these rules is retained: Stock is to be deemed to be situated in the United States only where it is stock of a domestic corporation. [¶] This rule conforms to the tax conventions the United States has entered into with many countries and removed any deterrent to the use of United States bank and trust companies as depositories. (House Committee Report on IRC Section 2104.)" The fact that Congress enacted a change in federal law in 1954 would appear to have no bearing on what the California Legislature intended to subject to its own inheritance tax in 1935.