Opinion
As Modified on Denial of Rehearing Nov. 27, 1964.
For Opinion on Hearing see 42 Cal.Rptr. 447, 398 P.2d 783.
Charles J. Barry, Chief Inheritance Tax Atty., Milton D. Harris, Asst. Inheritance Tax Atty., R. Edgar Sanderson, Assoc. Inheritance Tax Atty., San Francisco, for appellant.
Heller, Ehrman, White & McAuliffe, Robert J. White, Julian N. Stern, michael M. Golden, San Francisco, for respondent.
DRAPER, Presiding Justice.
Decedent's estate included United States Treasury Bonds, 2 1/2% series of 1967-72 and 3% series of 1995, of a total face value of $2,200,000. There is an active 'over-the-counter' market for such bonds, and on the day testatrix died, January 16, 1962, the bonds had a market value of $1,872,185.63, based upon the mean quotations of that day. The bonds may be redeemed at face value if used in payment of federal estate taxes. The executor so used them. The state inheritance tax appraiser valued the bonds at face. The executor objected to the report. The issue was tried on a stipulation of facts. The trial court sustained the objection and refixed the tax, basing it on valuation of the bonds at market value as of date of death. The state controller appeals.
Basic to the state's argument is the assumption that the use to which the executor puts the bonds, an appreciable time after death of their owner, fixes their value for tax purposes. At oral argument, counsel for the state readily conceded that only such bonds as are used or usable to pay estate tax should be taxed at face value, and that bonds of identical issue not so usable or used should be valued at market price.
But to make appraisal depend upon use or usability of the bonds by the executor obviously is to value them after the death of their owner. It is true that the right to use the bonds for payment of taxes arises at the time of death and that the federal estate tax is calculated as of the same time (26 U.S.C.A. § 811. Now Int.Rev.Code of 1954 § 2031). But whether the bonds are in fact so used or usable depends upon many factors--ultimate determination of the amount of estate tax, absence of urgent estate needs for cash which can be realized only through sale of the bonds, continuance of market price at less than face to time of tax payment and the business judgment which the executor's fiduciary duty requires him to exercise as to the advisability of such use--which are not determined for some time, often for many months, after death of the testatrix. It is conceded that availability of the bonds for estate tax payment at face value is an element which enhanced their market value at all times, including the date of death. To say that their use or continued availability for this same purpose at some time after date of death retroactively increases their value still more is to include an appreciation occurring after date of death. The California tax is based upon 'market value on the dete of * * * death.' California inheritance tax regulations (Chap. 2.5, Title 18, Calif.Admin.Code) specifically provide that 'depreciation or appreciation in value subsequent to the date of death are not relevant factors and will not be considered.' (Reg. 13951[a].) While the regulations do provide that 'all relevant facts and elements of value * * * will be considered' (Reg. 13951[a]), they specifically provide that the mean bona fide bid and asked prices in an over-the-counter market 'will be deemed the market value per share or bond' (Reg. 13951[e]). An exception is made for cases 'in which it is established that the (sales price) does not reflect the market value of a security' (Reg. 13951[f]). But it is not seriously contended that this regulation applies here, nor can it be, in light of the example given in the regulation, i. e., a case 'in which the sale * * * was made * * * on the basis of erroneous, false, and misleading information concerning the affairs and financial condition of the issuing corporation.'
The state relies heavily upon the federal rule permitting valuation of such bonds at face if they are useable for estate tax payment (Bankers Trust Company v. United States, 284 F.2d 537). Whatever difficulty we may have with the reasoning of that opinion, we do note distinguishing features of the administrative rules (Treasury Regulations 105, § 81.10) governing valuation for estate tax purposes. Those regulations are less rigid than the California inheritance tax regulations in fixing market sales as the true measure of value, and they do not contain the flat California prohibition against consideration of appreciation after date of death. The California administrative rules in effect at the date of testatrix' death do not permit the result now sought by the state.
Nor do federal decisions furnish the same persuasive guide for interpretation here as in the case of taxing acts, such as the gift tax, which are largely modelled upon federal statutes (see Gregory v. State, 77 Cal.App.2d 26, 174 P.2d 863, 175 P.2d 542). Our inheritance tax differs in principle and operation from the federal estate tax (see Estate of Miller, 184 Cal. 674, 678-679, 195 P. 413, 16 A.L.R. 694).
Nor is the New York rule compelling here. New York imposes a true estate tax, rather than a tax upon inheritance, and its courts have long recognized the legislative policy to conform to the federal act, a rule now formally established by statute (In re Behm's Estate, 19 A.D.2d 234, 241 N.Y.S.2d 264). California has no such statute, nor any statutory provision comparable to the Washington legislation (Wash.Rev.Code, § 83.40.040) which provides for revaluation of property appraised under its inheritance tax act to conform to differing valuations fixed for federal estate tax purposes.
Order affirmed.
SALSMAN and DEVINE, JJ., concur.