Opinion
No. 70-372 (Supreme Court No. 23788)
Decided January 19, 1971.
Inheritance tax refund awarded plaintiffs on basis that it was incorrectly assessed and paid because of an error of fact or law. Inheritance Tax Commissioner appealed.
Affirmed
1. TAXATION — Annuity — Established — Not Includable — Decedent's Estate — Commissioner's Assessment — Error of Law — Inheritance Tax Refundable — Statute. Where, as result of Supreme Court decisions and stipulation of parties, annuity payable to widow was established as not being includable in decedent's estate for inheritance tax purposes, Commissioner's assessment of tax on that annuity was an incorrect assessment because of an error of law and the tax is refundable under C.R.S. 1963, 138-3-41, as amended in 1966.
2. Inheritance Tax Commissioner — "Assessed the Tax" — Filed — Report of Appraisement and Assessment — Statute of Limitations — Run — That Date. Although Inheritance Tax Commissioner had previously computed and billed the tax, he had not "assessed the tax" as contemplated by the statute until the date upon which he, in compliance with the statute, filed with the probate court his Report of Appraisement and Assessment of the Tax and the statute of limitations as regards claims for refund began to run as of that date.
3. Statute — Effect — Taxpayer — Additional Remedy — Failure to File Objections — Not Bar — Claim — New Statute. The effect of the amendment of C.R.S. 1963, 138-3-41, is to provide a new remedy for taxpayers to obtain a refund of taxes that have been incorrectly assessed and paid because of an error of fact or of law, being an additional and separate remedy from that provided by C.R.S. 1963, 138-3-46, and accordingly failure to file objections under that section does not give the assessment such conclusive and final effect as to bar a claim for refund under 1967 Perm. Supp., C.R.S. 1963, 138-3-41.
Error to the Probate Court of the City and County of Denver, Honorable David Brofman, Judge.
Duke W. Dunbar, Attorney General, John P. Moore, Deputy, Lon J. Putman, Assistant, for plaintiff in error.
Mitchell Benedict, for defendants in error.
This case was originally filed in the Supreme Court of the State of Colorado and subsequently transferred to the Court of Appeals under authority vested in the Supreme Court.
The defendants in error, as plaintiffs in the trial court, recovered a judgment for refund of an inheritance tax which the court found was incorrectly assessed and paid because of an error of fact or law. The Commissioner seeks by this writ of error to reverse the judgment.
The case was submitted to the court on a stipulation of facts which is summarized as follows:
The decedent, Murrell O. Matthews, died at Denver, Colorado, on January 4, 1964, leaving a Last Will and Testament which was admitted to probate on March 16, 1964. The estate has been fully administered and the coexecutors discharged.
The original inheritance tax application was filed with the Commissioner on May 29, 1964, and the amended application, using the alternate valuation, was filed on January 21, 1964. Included in Schedule E of both applications was the annuity payable to Rebecca C. Matthews, the surviving widow, valued at $168,634. Said annuity became payable to the surviving widow as a result of the decedent's exercise of the option provided for in Section 10 of Ideal Cement Company Plan "B" for salaried employees, whereby an employee could elect to receive a reduced retirement income under terms whereby his spouse, after his death, would continue to receive said income during her life. Decedent died while still in the employ of the company.
A temporary payment of tax [$79,210] was made on July 2, 1964, which was accompanied by a letter from the attorney for the estate protesting the inclusion of the annuity payable to the widow as an asset of the decedent's estate. On March 5, 1965, the tax was computed, a statement rendered, and a receipt evidencing payment of the tax mailed to the attorney for the estate. The receipt set forth the difference between the temporary payment of the $79,210 and the tax computation of $50,728, and reflected a refund to the estate of $28,482. This amount was refunded by the Commissioner and accepted by the executors of the estate.
On June 20, 1966, the amended inheritance tax application was further amended to include additional assets of the decedent amounting to $4,617, representing refunds of Colorado income tax payments by decedent and additional expenses to the estate, which resulted in a further refund of $2,887. At that time request was renewed for the elimination of the annuity payable to the widow. Subsequently, on October 26, 1966, a final refund of $37 was made.
Reports of Appraisement and Assessment for both the original inheritance tax application and the amended return, using the alternate valuation dated November 28, 1966, were filed with the Probate Court on December 2, 1966. At no time subsequent to the filing of the reports have the executors filed objections pursuant to C.R.S. 1963, 138-3-46.
A request for refund was filed with the Commissioner on February 7, 1968, which was more than two years after the date on which the tax was computed, the statement rendered, and the receipt issued on March 5, 1965. The request for refund was denied by the Commissioner on February 12, 1968, and this action was filed on March 8, 1968.
The parties also stipulated that by reason of the decisions of the Colorado Supreme Court in People v. Hollingsworth, 164 Colo. 461, 436 P.2d 114, and People v. Egbert, 164 Colo. 467, 436 P.2d 116, the annuity to Mrs. Matthews of $168,634 is not a taxable transfer from the decedent and is not includable in decedent's estate.
Upon the basis of these stipulated facts, the court concluded that the tax was incorrectly assessed and paid because of an error of fact or of law; that the action to obtain the refund was not barred by the two-year limitation of the statute and that the action was not barred by the failure of the executors to object to the Report of Appraisement and Assessment of Tax filed by the Commissioner in the probate proceedings. The court's conclusions are correct and its judgment is affirmed.
I.
The first question presented is whether the inheritance tax payment here in issue was refundable under the provisions of C.R.S. 1963, 138-3-41, as amended, March 8, 1966.
Prior to March 8, 1966, C.R.S. 1963, 138-3-41, provided that "when any amount of said tax has been paid erroneously * * * it shall be lawful * * * [to refund it]."
This statute was construed by the Supreme Court in State v. Newton, 134 Colo. 58, 300 P.2d 527. The Court there held:
"* * * The term 'paid erroneously' is clearly intended to cover cases where payment was made under a misapprehension as to what was being paid. A tax intentionally and understandingly paid, although the assessment was made or the tax levied incorrectly, is not erroneously paid."
This interpretation of the statute was approved in National State Bank v. State, 156 Colo. 34, 396 P.2d 948. The tax here involved could not have been refunded under the provisions of C.R.S. 1963, 138-3-41, as it existed prior to the amendment because it was not "paid erroneously" as that phrase of the statute was interpreted by the Supreme Court. However, in 1966, the legislature repealed and reenacted C.R.S. 1963, 138-3-41, and the statute, from March 8, 1966, to April 20, 1967, provided in part:
"2 When any amount of inheritance tax has been incorrectly assessed and paid because of an error of fact or of law made either by the inheritance tax commissioner or by the representative of the estate, the state controller, upon receipt of a certificate of the inheritance tax commissioner, approved by the attorney general, shall refund the amount incorrectly paid * * *" Colo. Sess. Laws 1966, Ch. 41, § 1.
The effect of this amendment is to allow a refund of an inheritance tax which has been incorrectly assessed and paid because of an error of fact or of law, although such tax could not have been refunded as "paid erroneously" under the prior statute.
In the present case the Commissioner assessed the tax on the theory that the annuity to Mrs. Matthews was a taxable transfer from the decedent and includable in decedent's estate. However, after the tax was assessed the Supreme Court decided the cases of People v. Hollingsworth, supra, and People v. Egbert, supra. The parties have stipulated that by reason of these decisions the annuity of Mrs. Matthews is not a taxable transfer and is not includable in decedent's estate.
[1] The Commissioner, therefore, had incorrectly assessed the tax because of an error of law and the tax is refundable under C.R.S. 1963, 138-3-41, as amended in 1966. It should be noted that the statute was further amended to its present form in 1967 (1967 Perm. Supp., C.R.S. 1963, 138-3-41) but these 1967 changes have no effect upon the issues in this case.
II.
The second question is whether the claim for refund was made within the two-year limitation of the statute.
The statute, 1967 Perm. Supp., C.R.S. 1963, 138-3-41, as amended, provides:
"4 Claims for refund under this section shall be made within two years from the date of assessment of the tax."
The Commissioner's Report of Appraisement and Assessment of Tax dated November 28, 1966, was filed on December 2, 1966. The request for refund was made on February 6, 1968, denied February 12, 1968, and this action was filed on March 8, 1968. This claim was timely, since it was filed within two years after December 2, 1966, the date the Report of Appraisement and Assessment of Tax was filed with the Probate Court. The "date of assessment" referred to in 1967 Perm. Supp., C.R.S. 1963, 138-3-41, is the date the report of assessment is filed in the Probate Court. The Commissioner argues that his computation of the tax and rendering of a receipt on March 5, 1965, constituted "assessment" within the meaning of 1967 Perm. Supp., C.R.S. 1963, 138-3-41. Under this construction the claim would be barred by the two-year limitation of the statute.
[2] The procedure for appraisement and assessment of the Colorado inheritance tax is provided for in C.R.S. 1963, 138-3-46, which provides in part as follows:
"1 It shall be the duty of the inheritance tax commissioner to appraise the estate of every deceased person * * * and he shall determine the fair market value of all of the estate belonging to the deceased at the time of his death * * * and upon such determination the inheritance tax commissioner, with the approval of the attorney general, shall compute and assess the tax or fee to which the estate or transferees are liable, and immediately shall give notice by mail to the executor, administrator, trustee, or person filing the application and file in the court, if any, under whose jurisdiction the estate is undergoing administration, a report of the appraisement of the estate and the assessment of the tax."
The Commissioner, acting pursuant to this statute, performed his statutory duties and on December 2, 1966, filed the Report of Appraisement of the estate and assessment of the tax with the Probate Court. Although the Commissioner had previously computed and billed the tax, he had not "assessed the tax" as contemplated by the statute until December 2, 1966, when, in compliance with the statute, he filed with the Probate Court his Report of Appraisement and Assessment of the Tax.
III.
The third question is whether the failure to file objections in the Probate Court to the Report of Appraisement and Assessment, as provided for in C.R.S. 1963, 138-3-46, bars this claim for refund under C.R.S. 1963, 138-3-41.
C.R.S. 1963, 138-3-46, provides:
"2 Any person including the attorney general, dissatisfied with the assessment made or tax fixed may object thereto, either upon the ground of erroneous valuation, appraisement or assessment, or otherwise, by a written objection filed in the county court within ninety days after the filing of the report of assessment. * * * If no objections are filed or if objections filed are overruled by the court and no appeal is taken from such ruling, then said assessment order shall have the force and effect of a judgment, as in other cases provided, and execution may issue thereon to enforce the same by sale of the said property to satisfy said judgment."
The Commissioner assessed the tax here in question by filing his report with the Probate Court. The executors did not file objections to the report. The Commissioner contends that the assessment became a final judgment to which the doctrine of res judicata is applicable and constitutes a bar to the present refund action. The Supreme Court in National State Bank v. State, supra, decided prior to the 1966 amendment, considered the effect of the failure to file objections under C.R.S. 1963, 138-3-46, and there held:
"Under the plain meaning of the provisions of C.R.S. '53, 138-4-46, to which this court must give effect, the assessment, when filed, has the force and effect of a judgment, and failure to move to object to it within the ninety-day statutory period or to appeal from an adverse determination makes the judgment final."
In so holding the Court recognized that the rule was otherwise in states having statutes providing for refund procedures which Colorado did not have at the time of the decision. In jurisdictions where the statutes provide a refund procedure, the assessment of the tax is not given the force and effect of a final judgment. See Boe v. Steele County, 74 N.D. 58, 19 N.W.2d 921.
[3] The effect of the amendment of C.R.S. 1963, 138-3-41, is to provide a new remedy for taxpayers to obtain a refund of taxes that have been incorrectly assessed and paid because of an error of fact or of law. This is an additional and separate remedy from that provided by C.R.S. 1963, 138-3-46. Accordingly, the failure to file objections under C.R.S. 1963, 138-3-46, does not give the assessment made under that section such conclusive and final effect as to bar a claim for refund under 1967 Perm. Supp., C.R.S. 1963, 138-3-41. This conclusion is supported by Beals v. State, 139 Wis. 544, 121 N.W. 347; Boe v. Steele County, supra; Rogers v. Oklahoma Tax Commission, Okl., 263 P.2d 409.
Judgment affirmed.
JUDGE ENOCH and JUDGE PIERCE concur.