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decided: January 19, 1973.


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.

Author: Roberts

[ 450 Pa. Page 303]

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

[ 450 Pa. Page 304]

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

[ 450 Pa. Page 305]

    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 Nor does it pertain to the method by which the tax is computed; that is dealt with in Section 401.*fn3 Rather, Section 718(a) provides for deducting

[ 450 Pa. Page 306]

    the amount of the tax due on the specific devise, not for the purpose of reducing the total amount of the tax, but only for the purpose of determining the amount available for distribution to the residuary devisees.

The court's determination is also contrary to the express statutory mandate that, in computing the inheritance tax, the "only deductions from the value of the property transferred shall be those set forth in this Article [VI]." Act of June 15, 1961, P. L. 373, art. VI, § 601, 72 P.S. § 2485-601. We stated in Lazar Estate, 437 Pa. 171, 260 A.2d 734 (1970), that "[b]efore a taxpayer is entitled to a deduction, he must indicate what section of the statute provides for that deduction." Id. at 176, 260 A.2d at 736. Here, the taxpayer has not indicated, nor are we able to find, any section of Article VI permitting the deduction obtained below. Section 622,*fn4 which allows a deduction for certain death taxes, is specifically limited to taxes "paid other states". The Pennsylvania inheritance tax "remains nondeductible, for 1961 § 622 refers only to taxes paid 'to other states', etc. -- i.e., other than Pennsylvania." Grossman & Smith, Pennsylvania Inheritance and Estate Tax, § 622-2.3 (1971 Revision).

We conclude that the trial court erred in allowing the tax on the specific devise to be deducted for the purpose of computing the total inheritance tax due. To hold otherwise would lead to anamolous tax consequences in that the tax on the same total gift would

[ 450 Pa. Page 307]

    vary depending on the presence or absence of a specific devise. For example, if a testator desired to leave his entire taxable estate of $500,000 to B, either as a specific devise or as a residuary one, the inheritance tax due (taxed at 15%) would be $75,000. However, if that same gift to B is divided into a specific devise of $400,000 and a residuary gift of $100,000, under the method employed by the court below, the tax on the same total gift of $500,000 would be $66,000. The court below would reach that result by first determining the tax on the specific devise to be $60,000 (15% of $400,000). It would then subtract this tax from the $100,000 residuary gift, leaving a taxable residuary value of $40,000 ($100,000 gift less $60,000 tax) which produces a tax of $6,000 (15% of $40,000). Thus, the total tax liability, on the orphans' court theory, would be $66,000, rather than $75,000.*fn5 The Inheritance and

[ 450 Pa. Page 308]

Estate Tax Act neither authorizes nor permits such an unrealistic tax result.

The decree of the orphans' court is vacated and the matter is remanded to the court below to enter an appropriate decree consistent with this opinion. Each party pay own costs.


Decree of Orphans' Court vacated and matter remanded to court below.

Dissenting Opinion by Mr. Justice Manderino:

I dissent. The Constitution of the Commonwealth, Article 8, Section 1, requires that taxes shall be uniform on the same class of subjects. The inheritance tax is a tax on the transfer of a decedent's property. It is the act of transferring that is the subject of taxation. Act of June 15, 1961, P. L. 373, art. II, § 201, 72 P.S. 2485-201. The state has a right to full taxes on the total property being transferred. The state does not have a right to determine that a specific devisee or legatee will pay no taxes and the devisee or legatee of the residuary estate will pay double taxes. This result is what the majority approves. A law which taxed only residuary transfers and not specific transfers would involve classifications as to subjects of taxation which would be completely unreasonable. The same result cannot be allowed indirectly.

As the majority states, prior to the amendment of Section 718(a) each person paid a proportionate share of the inheritance transfer tax according to one's proportionate share in the property transferred -- whether

[ 450 Pa. Page 309]

    by specific devise or bequest or by residuary devise or bequest. The amendment to Section 718(a) is an unconstitutional provision violating the uniformity clause unless it is interpreted so that the residuary legatee or devisee does not suffer double taxation.

The majority speaks of anomalous tax consequences and mathematically attempts to show unfairness to the state. Nothing is said of the unfairness to the residuary legatee or devisee. Using the logic and mathematics of the majority we can illustrate another unfair result. If the transfer of a $500,000 estate, referred to by the majority, is by a specific bequest to "A" of $250,000 and a residuary bequest to "B" of $250,000, "A" would pay no taxes and "B" would pay (at 15%) $75,000. If the transfer of the same estate was to be in equal shares to "A" and "B", each would pay $37,500. The majority is saying that in two identical estates, each involving $500,000, the state is entitled (at 15%) to a tax of $75,000. I agree. I cannot agree, however, that in one estate the $75,000 is to be paid by "B" with no tax to "A" and in the other estate "A" and "B" share the tax. Such a result in tax matters must always be pursuant to reasonable classifications which do not exist in this case. The uniformity article of the Constitution is clearly violated under the majority's interpretation.

The Commonwealth has every right to collect the full tax due. It has no right to arbitrarily decide by statute or otherwise who will pay the tax. The testator may do this, or the state, by establishing non-arbitrary constitutionally valid classifications -- this has not been done.

The case should be remanded for modification of the decree in accordance with this opinion.

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