Comptroller of the Treasury v. Jameson

MURPHY, Chief Judge. We granted certiorari in this case to consider whether the State of Maryland may collect interest on the late payment of Maryland estate taxes where a subsequent payment of Maryland inheritance taxes eliminates the original estate tax liability- ⁷²⁵ I This case involves the complex interplay among the Maryland estate tax, the Maryland inheritance tax, and the federal estate tax. Because the terminology is critical to an understanding of the facts and issues presented in this case, we will first provide a brief overview of the three taxes and explain how the taxes are interconnected. The United States imposes a federal estate tax which is payable nine months after death.

See 26 U.S.C.A. §§ 2001 et seq., -6075(a) (West 1989 & Supp.1993) (“I.R.C.”). On the federal estate tax return, estates are permitted to claim a credit, up to a specified amount, for state death taxes actually paid to any of the fifty states. See I.R.C. § 2011. This credit is a method of revenue sharing in which the federal government is diverting some federal estate tax revenue to the states.

The Maryland inheritance tax is a tax imposed on the privilege of receiving property. See Maryland Code (1988) § 7-202 of the Tax-General Article. Although the executor of the estate is initially responsible for the inheritance tax, the ultimate liability usually falls upon the beneficiary as the executor either pays the tax with a portion of the beneficiary’s inheritance or with money collected directly from the beneficiary. See id. § 7-216.

The inheritance tax is paid to the Register of Wills in the county where the court that administers the estate is located, id. §§ 7-214, 7-215, but the tax is not due until the property is distributed from the estate. See id. § 7-217. The Maryland inheritance tax is not integrated with the federal estate tax; in other words, the calculation of the Maryland inheritance tax is not dependent upon the federal estate tax system in any way. On the other hand, the Maryland estate tax is completely integrated with the federal estate tax.

The structure of the Maryland estate tax is referred to as a “pick-up” tax. This means that, if the federal credit for state death taxes allowable by the Internal Revenue Code exceeds the Maryland inheritance tax, an estate must pay Maryland estate tax to pick up ⁷²⁶ the difference between the credit and the state inheritance tax. Stated more succinctly, the inheritance tax is deducted from the federal estate tax credit to determine the amount of Maryland estate tax. By providing for full use of the federal credit for state death taxes, the Maryland estate tax statute shifts taxes that would otherwise be paid to the federal government to the state treasury.

In contrast to the Maryland inheritance tax, the executor pays the Maryland estate tax to the State Comptroller and pays the estate tax directly from the decedent’s estate. At the applicable time in the instant case, the Maryland estate tax was due fifteen months after death. See Maryland Code (1957, 1983 Repl.Vol.) Art. 62A, § 3. 1 It is with an understanding of the foregoing principles that we consider the following question: May the State of Maryland collect interest on the late payment of estate taxes where a subsequent payment of inheritance taxes obviates the original estate tax liability? II Mary Louise Jameson (the “Decedent”), a resident of Charles County, Maryland, died on August 9, 1987.

Pursuant to § 6075(a) of the Internal Revenue Code, Decedent’s federal estate tax return was due nine months after the date of her death, on May 9, 1988. Under the applicable state law at that time, the Decedent’s Maryland estate tax return was due fifteen months after her death, on November 9, 1988. See Maryland Code (1957, 1983 Repl.Vol.) Art. 62A, § 3. 2 The ⁷²⁷ Maryland estate tax return, however, was not filed by this date. On March 28, 1989, Appellees, W. Ronald Jameson and Mary Cecelia Jameson, Personal Representatives of the Estate of Mary Louise Jameson (the “Estate”), paid to the Register of Wills for Charles County collateral inheritance tax in the amount of $5,100.00.

The Estate also paid to the Register of Wills for Charles County collateral inheritance tax in the amount of $192,363.23 on October 2, 1990; thus, a total of $197,463.23 in inheritance taxes was paid. Decedent’s federal estate tax return was under audit from September, 1989 through August 31, 1990. The Internal Revenue Service issued a federal estate tax closing letter on August 31, 1990. As noted above, under the federal estate tax laws, an estate may claim a credit on the federal estate tax return for state death taxes paid to a state.

In the instant case, the Decedent’s Estate claimed a state death tax credit in the amount of $143,321.00, which was the maximum allowable state death tax credit available to the Estate. The Personal Representatives finally filed the Decedent’s Maryland estate tax return on January 10, 1991. The Maryland estate tax return indicated, on line 10, that the Estate utilized the maximum credit for state death taxes reflected on the federal return in the amount of $143,321.00. As noted on the Maryland estate tax return on line 5, the percentage of the Decedent’s Maryland estate to the Decedent’s total gross estate was 80.7%.

Consequently, the portion of the state death tax credit allocable to Maryland was $115,660.00. The Maryland estate tax return also showed a payment of Maryland collateral inheritance tax in the amount of $197,463.00. As explained above, the inheritance tax is deducted from the federal estate tax credit allocable to Maryland to determine the amount of Maryland estate tax owed to the State. In this case, because the inheritance tax greatly exceeded the state death tax credit allocable to Maryland, the Maryland estate tax return developed a Maryland estate tax liability of zero. ⁷²⁸ On January 14,1991, the Comptroller submitted a bill to the Estate for $26,202.54 in interest on unpaid Maryland estate tax from November 9, 1988, the due date of the Maryland estate tax return, to March 28, 1989 and October 2, 1990, the dates of the two payments of Maryland inheritance tax. 3 The Estate failed to pay the bill, however, and the Comptroller formally assessed the Estate for the interest on February 14, 1991.

The Estate appealed to the Maryland Tax Court. On November 19, 1991, the Maryland Tax Court affirmed the Comptroller’s assessment. The tax court filed a Memorandum and Order wherein it stated that the issues in the case were “identical to those [presented] in the Estates of Sophie N. Chaney and Betty L. Bock, Miscellaneous Nos. 747 and 748 [ 1991 WL 249907 ].” 4 The tax court adopted the Memorandum of Grounds for Decision that it filed in the Chaney and Block case and upheld the Comptroller’s assessment of interest. The Estate appealed to the Circuit Court for Charles County.

On January 11, 1993, the circuit court issued an Opinion and Order wherein it reversed the Maryland Tax Court’s decision. Relying on this Court’s decision in Page v. Comptroller, 270 Md. 725 , 313 A.2d 691 (1974), the circuit court concluded that the Comptroller improperly assessed interest against the Estate. Although the circuit court acknowledged that Article 62A, § 2, the applicable Maryland estate tax statute, had been substantially amended after Page , the court ⁷²⁹ concluded that “if the legislature intended to repeal Page , they could have done so in more explicit language.” The Comptroller timely filed an appeal to the Court of Special Appeals. We issued a writ of certiorari prior to intermediate appellate review to address the confusion that exists in the area of state death taxes, 330 Md. 154 , 622 A.2d 1195 .

Before us, the Estate basically presents two arguments. First, it maintains that under this Court’s decision in Page, supra, the Comptroller may not collect interest on Maryland estate tax due when inheritance taxes that are due — though unpaid — would eliminate the estate tax liability. This argument is primarily based upon the Estate’s contention that the Page holding is still the controlling law in our state even though § 2 of Article 62A was amended in response to the Page decision. Second, the Estate argues that because inheritance taxes had not been paid as of the due date of the Maryland estate tax return, no federal credit for state death taxes was allowable and, therefore, no Maryland estate tax liability could have arisen. m The Estate heavily relies upon this Court’s decision in Page, supra, in support of its assertion that the State of Maryland may not “collect interest on the computation of Maryland estate tax payable by a decedent’s estate when said tax liability is, in fact, satisfied by the timely payment of inheritance taxes, at a time more than fifteen (15) months after the death of the decedent.” We agree with the Estate that the issue before the Court in Page is virtually identical to the issue before us today.

Page framed the issue as follows: “whether the State may collect interest on that portion of the Maryland estate tax payable by a decedent’s estate which was not paid until final distribution of the estate, at a time more than 15 months after the death of the decedent.” 270 Md. at 726 , 313 A.2d 691 . ⁷³⁰ In Page , the decedent died on August 27,1967. On November 22, 1968, the executors filed a federal estate tax return. The executors filed a Maryland estate tax return with the Comptroller on November 25, 1968. On the Maryland estate tax return, credit was taken for $529.40 in inheritance taxes paid and for $17,895.26 in inheritance taxes expected to be paid in the future upon final distribution of the estate.

Thus, the aggregate amount taken as credits totalled $18,424.66. Id. at 727 , 313 A.2d 691 . After an audit of the federal estate tax return by the Internal Revenue Service which increased the federal estate tax liability of the estate, the executors filed an amended Maryland estate tax return which took into account the corresponding increase in the allowable credit for state death taxes. On the amended Maryland estate tax return, the estate took credit for state inheritance taxes, which by then had been paid.

Because the estate had not paid the estate tax or the inheritance tax by the time it filed its original Maryland estate tax return, the Comptroller assessed the estate for $2,140.50 in interest, 6% on $18,424.66 — the aggregate of credits claimed against the original Maryland estate tax liability. Id. at 728 , 313 A.2d 691 . 5 The case was transferred to the Circuit Court for Baltimore County, where the court affirmed the Comptroller’s assessment of $2,140.50. Id. at 728-29 , 313 A.2d 691 . After interpreting Article 62A, § 2 as enacted at that time, the Court in Page held that the Comptroller’s assessment of interest was improper.

The applicable version of Article 62A, § 2 provided: “In addition to the tax and/or taxes imposed by Article 81, a ‘Maryland estate tax’ is hereby imposed upon the transfer of the ‘Maryland estate’ of every ‘decedent,’ the amount of which ‘Maryland estate tax’ shall be equal to the extent, if ⁷³¹ any, of the excess of the ‘credit’ over the aggregate of ‘State taxes’ paid by or out of the ‘Maryland estate’ of the ‘decedent’ or any part thereof, provided, however, that such ‘Maryland estate tax’ hereby imposed shall in no case exceed the extent to which its payment will effect a saving or diminution in the amount of the ‘federal estate tax’ payable by or out of the ‘Maryland estate’ of the ‘decedent’ had this article not been enacted.” Maryland Code (1957, 1972 Repl.Vol.) Art. 62A, § 2. In Page , the Court found to be persuasive the estate’s argument that the “word ‘paid’ may be regarded as the past tense of the verb ‘to pay.’ ” 270 Md. at 732-33 , 313 A.2d 691 . The Court stated that “[t]he executors ... could properly take credit for what was to be paid.” Id. at 734, 313 A.2d 691 (emphasis added). In other words, the Court held that the word “paid” in § 2 of Article 62A could also mean “to pay.” Consequently, the Court concluded in Page that the executors properly claimed credit on the Maryland estate tax return for inheritance taxes “to be paid” in the future and thus the corresponding estate tax liability was correctly reduced by those future inheritance tax payments.

In addition to the construction of the word “paid,” the Court also based its decision on logic and on the practical aspects of estate administration. After noting that inheritance taxes are not due until the estate is distributed, the Court said: “To say that the statutory scheme required an overpayment of estate tax within 15 months after death, and the subsequent filing of a claim for refund, upon which no interest was payable once the inheritance tax had been paid, defies both reason and logic, and finds no support in Code.” Id. at 734 , 313 A.2d 691 . Therefore, whether grounded in logic or founded upon a construction of the statute, an estate pursuant to Page could take credit on the Maryland estate tax return for inheritance taxes to be paid in the future. It is crystal clear that if we were faced with the same statute today, Page would control this case and the Estate would similarly prevail.

This is not the situation, however, because Article 62A, § 2 was amended by the legislature ⁷³² shortly after the Page decision. See Acts of 1975, ch. 56. Consequently, we must examine the version of Article 62A, § 2 that was in place on August 9, 1987, the date of Ms. Jameson’s death; it provided: “In addition to the tax and/or taxes imposed by Article 81, a ‘Maryland estate tax’ is hereby imposed upon the transfer of the ‘Maryland estate’ of every ‘decedent,’ the amount of which ‘Maryland estate tax’ shall be equal to the extent, if any, of the excess of the ‘credit’ over the aggregate of ‘State taxes’ paid by or out of the ‘Maryland estate’ of the ‘decedent’ or any part thereof, provided, however, that such ‘Maryland estate tax’ hereby imposed shall in no case exceed the extent to which its timely payment in accordance with federal law would effect a saving or diminution in the amount of the ‘federal estate tax’ payable by or out of the ‘Maryland estate’ of the ‘decedent’ had this article not been enacted and provided further that ‘State taxes’ will be considered ‘paid’ only when and as payment or payments thereof have been made and received by the appropriate agency or official of the State of Maryland. The amount of the Maryland estate tax payable under this section is not altered, diminished, or affected in any way by the failure of an estate’s representative to properly take and preserve the maximum State death tax credit allowable under federal law.” Maryland Code (1957, Repl.Vol.1983) Art. 62A § 2 (emphasis added).

We must ascertain the meaning of this section in order to resolve the issues in this case. In particular, we must discern the significance of the italicized portion of the statute, which was added in 1975 in response to the Page decision. Thus, this case involves an issue of statutory construction, the primary goal of which is to effectuate legislative intent. See State v. Crescent Cities Jaycees, 330 Md. 460, 468 , 624 A.2d 955 (1993) and cases there cited.

In determining the intent of the legislature, the primary source is the language of the statute. See Maryland Nat’l Bank v. Pearce, 329 Md. 602, 619 , 620 A.2d 941 (1993); Kaczorowski v. City of Baltimore, 309 Md. 505, 515 , 525 A.2d 628 (1987). Absent evidence ⁷³³ to the contrary, the words in a statute should be given their generally understood meaning. Brodsky v. Brodsky, 319 Md. 92, 98 , 570 A.2d 1235 (1990).

In addition, we look to the context surrounding the enactment of a statute to determine the intention of the legislature. For example, we recently said: “When we pursue the context of statutory language, we are not limited to the words of the statute as they are printed in the Annotated Code. We may and often must consider other ‘external manifestations’ or ‘persuasive evidence,’ including a bill’s title and function paragraphs, amendments that occurred as it passed through the legislature, its relationship to earlier and subsequent legislation, and other material that fairly bears on the fundamental issue of legislative purpose or goal, which becomes the context within which we read the particular language before us in a given case.” Pearce, 329 Md. at 619-20 , 620 A.2d 941 (quoting Kaczorowski, 309 Md. at 514-15 , 525 A.2d 628 ). It is with these principles in mind that we must determine the legislature’s intent when it amended § 2 of Article 62A.

In construing the amended statute, we first look to the plain meaning of the statute. The italicized portion of the statute clearly provides that taxes will be considered paid only when the payments have been made and received by a State agency. Thus, a credit for inheritance taxes paid could only be legitimately claimed if the taxes were in fact paid to the local Register of Wills. This unambiguous new language therefore makes clear that unpaid