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HomeMy WebLinkAbout96-0197 orphansIN RE: : ~ I'~~THE' cO'~RT OF cQMM0~ PLEAS .... OF~ ~ : ~MBERLAND COUNTY, PENNSYLVANIA : ESTATE OF THOMAS D. NEIER, : ~0': 21-96-0197 DECEASED : : ORPHANS' COURT DIVISION IN RE: PETITION FOR REVIEW OF A DECISION BY THE PENNSYLVANIA DEPARTMENT OF REVENUE DECREE NISI AND NOW, this /~~ day of SEPTEMBER, 1998, the action of the Board of Appeals is reversed and Petitioner shall be permitted to elect under Section 9113(a) of the Inheritance Tax Act and to prepay inheritance tax with interest to November 17, 1996. Petitioner is directed to tender payment to the Department of Revenue within ten (10) days after the date this order becomes final. This order shall become final unless exceptions are filed hereto within ten (10) days. By the Edward E. Guido, J. Carl C. Risch, Esquire For the Petitioner Nicholas J. Lamberti, Esquire For the Commonwealth Department of Revenue :sld IN RE: - : IN THE COURT OF COMMON pLEAS oF : CUMBERLAND COUNTY, PENNSYLWANIA ESTATE OF THOMAS D. NEIER, : NO. 21-96-0197 DECEASED : : ORPHANS' COURT DIVISION IN RE: PETITION FOR REVIEW OF A DECISION BY THE PENNSYLVANIA DEPARTMENT OF REVENUE BEFORE GUI DO, J. OPINION AND DECREE NISI Before us is a petition for review of a decision by the Pennsylvania Department of Revenue which denied Petitioner's election under section 9113(a) of the Inheritance and Estate Tax Act (72 P.S. ~ 9113(a)). A hearing de novo was scheduled before this Court at which time the parties submitted the matter on stipulated facts. Briefs were subsequently filed by each party. This matter is now ready for disposition. FINDINGS OF FACT~ The parties filed the following stipulation of facts which we adopt for purposes of this opinion: 1) Thomas D. Neier, Decedent, died February 20, 1996, residing in Cumberland County, Pennsylvania, whereupon Letters Testamentary were issued by the Register of Wills of Cumberland County to the Petitioner on May 5, 1996. 2) On August 7, 1996, Petitioner filed the Pennsylvania inheritance tax return with the Register of Wills of Cumberland County. 3) On November 27, 1996, Petitioner filed a supplemental Pennsylvania inheritance tax return, along with Schedules "M" and NO. 21-96-0197 ORPHANS' ~OURT "O", With-'the ~egister of Wills of Cumberland COunty''~' S~hedule "O" is a form to make an election under § 9113(a) (SpoUsal _ distributions) . 4) Petitioner did not request an extension of time to file its (sic) Pennsylvania inheritance tax return on a timely basis pursuant to 72 P.S. § 9136(d). 5) Petitioner attached Schedules "M" and "0" to the supplemental return filed nine months and seven days after Decedent's date of death. The purpose of the supplemental return was an attempt to elect that all of the assets in a trust created for the sole use of the Decedent's surviving spouse during the spouse's lifetime be treated as a taxable transfer in the Decedent's estate pursuant to ~ 9113(a) of the Inheritance and Estate Tax Act of 1991. 6) By attempting to make this election, Petitioner attempted to choose to "prepay" inheritance tax on assets presently valued at $123,050.56; the surviving spouse's remainder interest. 7) Petitioner included a check with the supplemental Return in the amount of $7,397.03, the amount of tax potentially due under the prepayment election. 8) The Department of Revenue did not record this payment as a prepayment under ~ 9113 (a); rather, the Department reduced the amount due in the late filed supplemental return to zero and recorded the $7,397.03 as a tax credit. NO. 2 1-'96-0197 ~RPHANS'' COURT 9) On January '22, 1998, Petitioner protested~o~ the Bo%rd of Appeals, Department of Revenue seeking a change in! this application of the $7,397.03 amount to a prepayment under 9113(a) . 10) On February 9, 1998, the Board of Appeals of the Department of Revenue denied Petitioner's Protest maintaining that a ~ 9113(a) prepayment election cannot be made on a supplemental return filed more than nine months after the death of the Decedent. 11) The Commonwealth would benefit in the short term by Decedent's spouse prepaying inheritance tax under § 9113 (a) , but may not benefit in the long-term, depending on subsequent events, if it permits this prepayment election, which it claims to be filed late, to be deemed a valid election. 12) On April 8, 1998, the Department sent the Estate a check in the amount of $7,397.03, as a refund. DISCUSSION The issue before us is whether the Commonwealth of Pennsylvania Department of Revenue correctly denied Petitioner's election not to have Section 9113(a) apply to certain trust assets.~ Since the election was made on a supplemental ~Section 9113 (a) of the Inheritance and Estate Tax Act provides as follows: (a) In the case of a transfer of property for the sole use of the transferor's surviving spouse during the surviving spouse's entire lifetime, all succeeding interests which follow the interest of the surviving spouse shall not be NO. 21-96-0197 ORPHANS' COURT inherit'ance° 'tax return filed morgan nine months. ~after Decedent's-death, the Commonwealth_ takes the position that-it was not timely and, therefore, not valid.2 Petitioner argues that the language in Section 9113 (a) is directory, not mandatory, as to the time and manner for making the election. Additionally, Petitioner argues that the Commonwealth's interpretation is overly technical, works an undue hardship on her, and defeats the purpose of the statute. The crux of this case is whether the directive of the statute that "the transferor's personal representative may elec%, on a timely filed inheritance tax return" is mandatory as to time and manner of the election. After a thorough review of the briefs, as well as the applicable law cited therein, we are satisfied that it is not. Petitioner points out that the word "may" can never be subject to tax as transfers by the transferor if the transfer was made by a decedent dying on or after January 1, 1995, provided that the transferor's personal representative may elect, on a timely filed inheritance tax return, to have this section not apply to a trust or similar arrangement or portion of a trust or similar arrangement. 72 P.S. ~ 9113(a) 2Section 9136(d) of the Inheritance and Estate Tax Act (72 P.S. ~ 9136(d)) provides that inheritance tax returns "shall be filed within nine months after the death of the decedent." However, it also provides that an extension of six months may be granted if requested prior to the expiration of the original nine months. NO. 21-96-0197 ORPHANS' COURT interpreted as being mandatory.3 Therefore/, she argues that the statute is clearly directory and not mandatory. Unfortunately, our decision is not quite that easy. The word "may" in Section 9113(a) applies to the making of the election itself. The language referring to the time and manner of the election is neither clearly directory nor clearly mandatory, it is neutral.4 However, we do agree with Petitioner that the language of Section 9113(a) is directory. We base our conclusion on the reasoning of the Superior Court in County of Allegheny v. Pa. Pub. Util. Comm., 192 Pa. Super. 100, 159 A.2d 227 (1960). In that case Allegheny County had entered into a contract with a public utility which, due to an oversight, was not immediately submitted to the Public Utility Commission as contemplated by the parties and required by statute. Several years after the effective date of the contract, Allegheny County attempted to void it. The Superior Court was called upon to interpret section 911 of the. Public Utility Law, which provided, in relevant part, 3See Werner v. Hospital Serv. Plan of Lehigh Valley, 144 A.2d 575, 187 Pa. Super. 244 (1958). Werner held that "[a]lthough the word 'shall' might, in a proper setting, be interpreted as permissive, the word 'may' can never be given the imperative meaning." 144 A.2d at 577. 4By contrast the various cases cited by the Commonwealth in its brief dealt with statutes which were clearly mandatory. In each of those cases the word "shall" or "must" was used when referring to the time and manner of the election to be made or the thing to be done. Those courts properly determined that such strong language made time and manner of the essence of the thing to be done. See e.q. FDIC v. Board of Fin. and Revenue, 368 Pa. 463, 84 A.2d 495 (1951), Biro v. Commonwealth, 707 A.2d 1205 (Pa. Commw. Ct. 1998). NO. 21-96-0197 ORPHANS' COURT as follows: No 'contraCt or agreement between any public utility~and~any municipal corporation shall be valid unless filed'With the commission at least thirty (30) days prior to its effective date .... 66 P.S. ~ 1351. In holding that provision to be directory rather than mandatory, the Court stated: Where, as here, construing the language as mandatory would so seriously impair the purpose of the statute as to amount to a defeat of that purpose, we must consider its provisions as directory. [citations omitted] When time and manner are not the essence of the thing required to be done, the statute will be regarded as directory and proceedings under it will be held valid, even though the command of the statute as to form and time has not been strictly obeyed. [citation omitted] While the word 'shall' is used in connection with the validity of the contract or agreement, it is not used in connection with the procedure to be employed in establishing such validity. In the latter regard, time is not of the essence. 192 Pa. Super. at 110-111, 159 A.2d at 232-233. Applying the reasoning of Allegheny to the case at bar, we are convinced that the directive as to the time of the election under Section 9113(a) should not be construed to be mandatory. The Purpose of the instant statute is to raise revenue for the Commonwealth and to allow taxpayers a choice as to when certain assets will be taxed. If we were to construe the instant language as mandatory, it would not only deprive petitioner of her choice, it would also deprive the Commonwealth of current revenue with no guarantee that it would be replaced with future revenue. Since the election was made only nine months and seven days after the decedent's death, and since the Commonwealth can show no prejudice, we find that the election should be allowed. NO. 21-96-0197 ORPHANS' COURT DECREE NISI ! AND NOW, this t day of SEPTEMBER, 1998, the action of the Board of Appeals is reversed and Petitioner shall be permitted to elect under Section 9113(a) of the Inheritance Tax Act and to prepay inheritance tax with interest to November 17, 1996. Petitioner is directed to tender payment to the Department of Revenue within ten (10) days after the date this order becomes final. This order shall become final unless exceptions are filed hereto within ten (10) days. By the Court, Carl C. Risch, Esquire For the Petitioner Nicholas J. Lamberti, Esquire For the Commonwealth Department of Revenue :sld /s/ Edward E. Guido Edward E. Guido, ~J.