6 Or. Tax 241 | Or. T.C. | 1975
Decision for plaintiff rendered November 24, 1975.
Plaintiff appealed from the Department of Revenue's Order No. IH 74-10, dated October 18, 1974, assessing additional Oregon inheritance taxes. The defendant contends that veterans' benefits received by the decedent's widow are subject to the tax. Plaintiff argues that veterans' benefits are similar to the social security benefits which were held nontaxable inEst. R. L. Sleeter v. Dept. of Rev.,
The facts are not in dispute and the matter was tried on briefs. The decedent, an Oregon resident, was killed on December 22, 1972, while flying for the Oregon Air National Guard, thereby coming within the definition of "veteran" in 38 U.S.C. § 401.1 Plaintiff's personal representative filed an inheritance tax report, omitting any value relating to the benefits of veterans' widows to which decedent's widow was entitled under 38 U.S.C. §§ 410(a) and 411(a).2 The defendant has *243 determined a deficiency of $32,548.58 and assessed an inheritance tax of $316.61 (Notice No. 201880).
The court finds that benefits of veterans' widows do not constitute property under Oregon's inheritance tax laws, and even if such benefits were property, they are not taxable since they were never part of the decedent's estate.
I. Veterans' Benefits Are Not Property Taxed by Statute. The Oregon inheritance tax statute, ORS
"(1) All property and any interest therein, within the jurisdiction of the state, * * * which passes or vests by survivorship, will or by statutes of inheritance * * * or by deed, grant, bargain, sale or gift, * * * or intended to take effect in possession or enjoyment after the death of the grantor, bargainor or donor to any person or persons, * * * or by reason whereof any person * * * shall become beneficially entitled, in possession or expectation, to any property or income thereof, is subject to tax at the rate specified in ORS
118.100 , to be paid to the Department of Revenue for the use of the state."
The statute only taxes "property and any interest therein" and therefore it is incumbent upon the court to determine, as it did with social security benefits in Est. R. L. Sleeter, supra,
whether benefits of a veteran's widow constitute property within the meaning of the Oregon act. As in Sleeter, it is apparent that these benefits do "not pass by will or statutes of inheritance, *244
deed, grant, bargain, sale or gift."
[1.] "Large concepts like 'property' * * * call for close analysis, especially when tax legislation is under scrutiny * * *." Whitney v. State Tax Com.,
[2.] The spouse's interest in veterans' benefits is contingent, terminable, and is not capable of assignment or other alienation. Such rights cannot be considered "property" within the meaning of ORS
The defendant, citing 38 U.S.C. § 411,3 asserts that such properties are not contingent, but are vested. Although the section cited sets out a schedule of the amount of benefits payable to the widow, the court can find no vesting. Like social security benefits, veterans' benefits are contingent because the Congress always has the right to change or terminate the benefits.
"Moreover, veterans' benefits are gratuities and establish no vested rights in the recipients so that they may be withdrawn by Congress at any time and under such conditions as Congress may impose." Milliken v. Gleason,
332 F.2d 122 ,123 (1st Cir 1964), cert denied,379 U.S. 1002 ,85 S Ct 723 , 13 L Ed2d 703 (1965).
See also Cieliczka v. Johnson,
Upon the widow's remarriage, her benefits will stop.
Like social security benefits, veterans' benefits are not capable of assignment or other alienation by the widow.
Inalienable, terminable, contingent rights do not rise to the level of property under the act. However, defendant offers two further arguments: (1) Since veterans' benefits are excluded from the tax under ORS
[3.] The first argument was rejected by the court inSleeter, supra, as follows:
"* * * Without being further advised, the court assumes the exclusion may have lawful application in some area, but it is not relevant here where no property passes pursuant to ORS
118.010 and when no value can be ascribed to the alleged property right here considered." 5 OTR at 606.
This court can easily imagine the existence of a federal retirement program where the widow's rights are vested (e.g., as a result of her spouse making contributions while a federal employee), which is not terminated upon her remarriage and is assignable and alienable. The possible existence of at least one such plan would mean that ORS
Defendant's second argument distinguishes Sleeter because here the widow has "presently ascertainable economic benefits." In Sleeter, the widow would have had to wait until she reached age 60 in order to receive her first benefits, while Mrs. Seitz was eligible immediately upon the death of her husband to receive such benefits. Defendant's contention may be accurate. However, in Sleeter, the discussion of "presently ascertainable economic benefits" concerned the valuation of the social security benefits, and assumed the legislature intended "to tax the alleged property rights herein described * * *." As has already been stated, the court finds that the benefits of the veteran's widow are not property within the meaning of that word in ORS
II. Property Never Owned by Decedent Not Taxed by Statute. Even if it could be concluded that benefits of veterans' widows were property within the meaning *247 of the statute, such property would not be subject to Oregon's inheritance tax in this suit because the benefits were not owned, nor were they ever owned, by the decedent.
It has been asserted that the state has the power to levy a tax on property not owned by the decedent on his death.Central Hanover Bank T. Co. v. Kelly,
[4.] ORS
"In the absence of clear language to that effect we will not assume that the Legislature intended to levy a succession or inheritance tax against property over which the deceased had no control and possessed no incident of ownership. * * *"
Oregon's inheritance tax has been described as "a tax on the right or privilege of the living to receive property from the dead * * *." In re Lewis' Estate,
"The general rule appears to be that the mere fact that the beneficiary does not come into possession or enjoyment until the death of the transferor is not alone enough to impose tax liability; some incident of ownership of the transferor must also leave him at death. The tax law contemplates a shifting from the transferor to the beneficiary at or after death. * * *"
In People v. Hollingsworth,
"It is clear from just a cursory reading of the statute that the property passing or being transferred must have been that which the decedent owned, controlled, possessed, had income from or an interest in for it to be included in property for inheritance tax purposes. * * *"
This rule expresses the weight of authority throughout the United States. People v. Egbert,
[5.] The defendant counters that since Oregon has an inheritance tax, then all property received by the beneficiary, and not necessarily that passing from the estate, will be its subject. However, in Wachovia Bank Trust Co., supra, the court carefully distinguished between an inheritance tax and an estate tax, yet concluded that "[t]here must be some shifting of *249 economic benefits from the dead to the living. * * *" Generally speaking, the legislature intended to limit the tax to the following: property found in the decedent's estate at his death in which he retained at least some incident of ownership, property passing from his estate in contemplation of death, or property passing to a person who was a third-party beneficiary to a contract entered into by the decedent. The court finds no basis for excepting the factual and legal situation set out in this suit from these statutory limitations.
[6, 7.] The inter vivos interest of the decedent in the fund need not be large to subject it to inheritance taxes upon his death. The mere right to change the beneficiaries of the fund has been held to be a sufficient interest. Fleming Estate, 5 Fid Rep 382, 2 Pa. D. C.2d 425 (Pa 1955). It has also been held that if the benefits were a result of the decedent's contractual relationship with an insurance company or an employer, so that the consideration to produce the benefits flowed from the decedent, this would also be a sufficient lifetime interest.Dolak v. Sullivan,
Applying the general rule that the decedent must have had some inter vivos interest in the property, it can be seen that the husband, during his life, had no interest whatsoever in his widow's potential veterans' benefits. An examination of the applicable federal statutes shows that the veteran made no financial contribution in respect to the benefits, and that he could not use, control, possess or enjoy the "property." He *250
could not designate the beneficiaries or the amounts payable to them. He had no interest in any appropriation or fund from which the benefits would be paid. There was no contractual relationship between the decedent and the federal government establishing or producing these benefits. Taylor v. UnitedStates,
Defendant's Order No. IH 74-10 is set aside as void and held for naught and its Notice of Inheritance Tax Deficiency shall be withdrawn or modified as required by this decision.
Plaintiff is awarded its statutory costs.
38 U.S.C. § 411(a). "Dependency and indemnity compensation shall be paid to a widow, based on the pay grade of her deceased husband, at monthly rates set forth in the following table: * * *."
