Clarke v. Welden

Henderson, J., delivered the opinion of the Court. The question presented in this appeal is whether, in computing the Maryland inheritance tax chargeable to the sole beneficiary of a Maryland decedent, the entire Federal estate tax is deductible, including that portion attributable to real estate of the decedent located in the District of Columbia. The case arises from an ac ²⁸ tion by the Register of Wills for Montgomery County against the executrix and sole beneficiary under the will of Wallace E. Gregg, to which a general issue plea was filed. There were cross-motions for summary judgment, the court granting the appellee’s motion.

The decedent died in January, 1947. The will made no provision regarding the payment of Federal estate tax. In addition to substantial Maryland assets, the decedent left real estate in the District of Columbia. In computing the inheritance tax due to the District of Columbia, the appellee was allowed a deduction representing a portion of the Federal estate tax, calculated by dividing the net value of the real estate there located by the net value of all property subject to Federal estate tax.

In computing the Maryland inheritance tax she claimed as a deduction the entire revised Federal estate tax on all the decedent’s property, including the District of Columbia real estate, and paid the tax so computed. The appellant claims additional inheritance taxes computed on that portion of the Federal estate tax, claimed as a deduction here, equal to the deduction claimed in the District of Columbia, or, to express the claim in another way, on the amount of Maryland assets used to pay the portion of the Federal estate tax attributable to the foreign real estate. The appellant does not deny that the Federal estate tax is a deductible item in determining the amount of the distributive share subject to Maryland inheritance tax, or that it has been the administrative practice to allow it. It was recognized as a fully deductible item in 24 Opinions of the Attorney General 892, but it does not appear in that opinion whether any foreign assets were involved.

It was reasoned that since the Federal tax is upon the right to transmit property whereas the Maryland tax is upon the right to receive it, the amount distributed must necessarily be reduced by the Federal tax chargeable against the entire net estate. Cf. Bouse v. Hutzler, 180 Md. 682, 685 . The domiciliary executor is chargeable with the payment of the Federal ²⁹ tax upon the assets wherever located.

Section 826(b) of the Internal Revenue Code provides that “so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution.” In the absence of direction in the will, the tax is payable out of the personal residuary estate as a debt of the estate or an expense of administration. Y.M.C.A. v. Davis, 264 U. S. 47 ; Hepburn v. Winthrop, 83 F. 2d 566 . The Maryland tax is imposed upon 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 * * *.” Section 149, Article 81, Code of 1951. In Bouse v. Hutzler, supra, it was said that “clear value” means net value after the payment of all debts and expenses of administration.

The appellant insists, however, that the full deduction should not be allowed where a portion of the deduction is claimed and allowed in another state where taxable assets are located. He argues that the allowance of the full amount under such circumstances would permit a double deduction. The argument would have more force if we were dealing with a uniform and mutually exclusive system, which we are not. Doubtless Maryland could, if it chose, disallow the deduction altogether, or allow it only in part, since the question is one of policy and not jurisdiction to tax.

Cf. Stebbins v. Riley, 268 U. S. 137 . Likewise, the District of Columbia could have disallowed the proportionate deduction, but instead it chose to allow it by regulation not open to challenge here. See Section 6(g) Regulations Pertaining to the Inheritance and