Appeal from decree of Court of Common Pleas of Armstrong County, No. 3-71-030, in re estate of Flora M. Zellefrow; appeal of Commonwealth of Pennsylvania.
Vincent J. Dopko, Deputy Attorney General, for Commonwealth, appellant.
No oral argument was made nor brief submitted for appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Roberts. Dissenting Opinion by Mr. Justice Manderino.
Flora Zellefrow, decedent, died testate in December, 1970, leaving an estate which consisted of $12,000 in realty, personalty valued at $5,608.74, and jointly held property in the amount of $1,570.80. The will devises the realty to decedent's three children in equal shares and "[a]ll the rest, residue, and remainder" equally to the three children and a nephew.
The question presented by this appeal is whether the amount of the inheritance tax, calculated to be due on specifically devised property, is to be deducted from the value of the residue before computing the total inheritance tax due. The Commonwealth's assessment did not allow such a deduction. The Orphans' Court
Division of Armstrong County rejected the Commonwealth's tax assessment and held that the inheritance tax on the specifically devised realty is deductible before valuing the residue for tax purposes. We reverse that determination.
The orphans' court relied upon Section 718(a) of the Inheritance and Estate Tax Act which provides: "In the absence of a contrary intent appearing in the will, the inheritance tax imposed by this act on the transfer of property which passes by will absolutely and in fee, and which is not part of the residuary estate, shall be paid out of the residuary estate and charged in the same manner as a general administration expense. Such payment shall be made by the personal representative and, if not so paid, shall be made by the transferee of the residuary estate." Act of June 15, 1961, P. L. 373, art. VII, § 718, as amended, 72 P.S. § 2485-718. (Emphasis added.) It is clear that Section 718(a) does not support the court's conclusion, for that section refers only to the source of payment of the inheritance tax, not to methods of computing that tax. See Remmel Estate, 425 Pa. 325, 330 n. 6, 228 A.2d 889, 892 n. 6 (1967); Lengel Estate, 33 Pa. D. & C. 2d 1 (1963). The Joint State Government Commission, in its comments to Section 718(a), states that "[t]his subsection changes existing law under which the tax is payable by the legatee or out of property passing to him unless the will clearly indicates otherwise." (Emphasis added.) Similarly, this Court stated in Remmel Estate, supra, that "[u]nder the Act of June 15, 1961, P. L. 373, § 718, 72 P.S. § 2485-718, taxes are paid out of the residuary estate unless there is a contrary intention appearing in the will." Id. at 330 n. 6, 228 A.2d at 892 n. 6. (Emphasis added.)
The court erroneously interpreted the phrase in Section 718(a) that the tax "shall be paid out of the residuary estate and charged in the same manner as a
general administration expense" to mean that the tax due on the specific devise is to be treated as an administration expense and allowed as a deduction.*fn1 Such an interpretation fails to recognize that Section 718(a) merely designates the source of payment of the tax as between the devisees of the specific gifts and those of the residue. Cf. Frick's Estate, 277 Pa. 242, 121 Atl. 35 (1923), rev'd on other grounds, 268 U.S. 473, 45 S. Ct. 603 (1925). Section 718(a) does not deal with the imposition of the inheritance tax; that is provided for in Section 201.*fn2 ...