Bouse v. Hutzler

Delaplaine, J., delivered the opinion of the Court. John H. Bouse, Register of Wills for Baltimore City, appellant, claims that Louis S. Hutzler, executor of the estate of Sarah S. Mandelbaum, deceased, owes a balance of $1,082.37 for collateral inheritance taxes on the transfer of legacies from this estate. i ⁶⁸⁴ Mrs. Mandelbaum died on August 4, 1937. Her will bequeathed specific legacies amounting to 3213,800, and directed that collateral inheritance taxes should not be deducted therefrom but should be paid out of the residue of the estate. It appears that the defendant has paid 317,936.65 on account of collateral inheritance taxes.

The Superior Court of Baltimore City held that he has paid all that is lawfully collectible. From a judgment for the defendant, the Register of Wills brings this appeal. Collateral inheritance taxes have been imposed in Maryland since 1845. In that year the Legislature imposed a tax of 2% per cent, on every $100 of the clear value of property passing from a decedent to any person “other than to or for the use of the father, mother, wife, children, and lineal descendants.” .

Acts of 1844, Chap. 237. In 1850 the Supreme Court of the United States held that a State possesses the power to regulate the manner and terms upon which property within its dominion may be transferred by will or by inheritance, and that a law imposing a tax on legacies does not violate the Federal Constitution. Mager v. Grima, 8 How. 490 , 12 L. Ed. 1168 . In 1868 the Court of Appeals found that the Maryland Act did not violate the Constitution of the State.

Tyson v. State, 28 Md. 577 . The present Act, passed by the Legislature at the special session of 1936, imposes a tax of 7% per cent, on “every one hundred dollars of the clear value of any and all property, having a taxable situs in this State, passing at the death of any resident or non-resident decedent, in trust or otherwise, to or for the use of any person or persons, other than the father, mother, husband, wife, children or lineal descendants of such decedent.” Acts of 1936 (Sp. Sess.), Chap. 124; Code, 1939, Art. 81, Sec. 110. The Maryland inheritance tax, like the Federal estate tax, is not a tax on the decedent’s property itself, but a tax on its transfer.

But there is a fundamental diiference between the two schemes of taxation. The Federal ⁶⁸⁵ estate tax is a tax on the transfer or, rather than the succession to, the property of the decedent, and is payable out of the corpus of the estate and not out of legacies as such. Hepburn v. Winthrop, 65 App. D. C. 309, 83 F. 2d 566 , 105 A. L. R. 310; United States v. Woodward, 256 U. S. 632 , 41 S. Ct. 615 , 65 L. Ed. 1131 . The Maryland inheritance tax is imposed on the privilege of becoming a beneficiary under a will or of succeeding to an inheritance.

State v. Dalrymple, 70 Md. 294 , 17 A. 82 , 3 L. R. A. 372; Washington County Hospital Asso ciation v. Mealey’s Estate, 121 Md. 274 , 88 A. 136, 140 , 48 L. R. A. (N. S.) 373, Ann. Cas. 1915B, 1050; Good Samaritan Hospital v. Dugan, 146 Md. 374 , 126 A. 85 ; Bouse v. Hull, 168 Md. 1 , 176 A. 645 ; Rosenburg v. Bouse, 172 Md. 530 , 192 A. 323 ; 28 Am. Jur., Inheritance, Estate Succession and Gift Taxes, Secs. 278, 279, 280. Under the Maryland statute, the executor, administrator, or other person making distribution is charged with the payment of inheritance taxes to the Register of Wills for the use of the State.

Code, 1939, Art. 81, Sec. 112. However, since the tax is a charge against each distributive share according to its value, the executor, administrator or other person must pay the tax out of the legacy, devise or distributive share of the estate or with money collected from the legatee, devisee or heir. Of course, a testator has the right to direct that the tax be paid out of the residuary estate. In case he so directs, he thereby increases his gift to the legatee to the extent of the tax, for he is providing for the payment of an obligation, which the legatee would have been obliged to pay if the testator had not directed otherwise.

General German Aged People’s Home v. Johns Hopkins Hospital (Textor v. Textor), 170 Md. 128, 130 , 183 A. 247, 248 . It is, therefore, an established rule that where a testator bequeathes a specific legacy and directs that the inheritance tax shall be paid from the residuary estate, the tax is calculated, not upon the specified amount alone, but upon the specified amount plus such an amount that, after the tax is calculated on ⁶⁸⁶ the total and deducted therefrom, the legatee will receive the specified amount free from tax. In re Irwin’s Estate, 196 Cal. 366 , 237 P. 1074, 1077 ; 51 A. L. R. 486; In re Levalley’s Estate, 191 Wis. 356 , 210 N. W. 941 ; In re Bowlin’s Estate, 189 Minn. 196 , 248 N. W. 741 ; In re Henry’s Estate, 189 Wash. 510 , 66 P. 2d 350 ; 61 C. J., Taxation, Sec. 2589. We can see no reason