Untitled Texas Attorney General Opinion ( 1961 )

TEEATJTORNEYGENE~ OF TEXAS FVIJiL WILSON *-x-r0RNEY GENERAL February 28,,lg61 HonorableRobert S. Calvert Opinion No. WW-1003 Comptrollerof Public Accounts Capitol Station Re: Reconsiderationof Austin, Texas Opinion No. WW-922 per- taining to taxability for inheritancetax pur- poses of bequest to the United States to be used for the retirementof the National Debt in view of new proposal with regard Dear Mr. Calvert: to.use of said bequest. In Opinion No. W-922 this office-consideredthe taxabil- ity .for.inherLtance ~tsx purposes of a beque~st,in trust to the United States Government to be used'forthe retirementof the National Debt. The specific bequest reads as follows: 'I direct that any Income from'the Susan Vaughan Clayton Trust.No.,2 . . . be paid for the period provided in the instrumentcreating said Trust, as follows: "(a) One-half (l/2) of such income to my beloved country, the United States of America, to be used for the retire- ment of the National Debt. . .. ." This bequest was subject to inheritancetax unless exempt by the following provision of Article 14.06-ClassE, ch. 14, Title 122-A, Ts.x.-Gen.,V.C.S.: "Provided,however, that this Article shall not apply .onproperty passing to or forthe use of the United States, or to or for the use of any.religlous,educa- tional or charitable orgsnlzation,~incorpo- rated,,~unlncorporatedor in the form of a trust, when such bequest, devise or gift Is to be used within this State. The exemp- tion from tax under the preceding provisions of this Article shall, withoutlimiting its applicationunder other appxopriate- clr- cumstances,apply to all or so much of any Honorable Robert S. Calvert, Page 2 Opinion No. WW-1003 bequest, devise or gift to or for the use of the.,UnitedStates, or a religious, educationalor charitableorganization, which is, In writing and.prior to the payment of the tax, irrevocablycommitted for use exclusivelywithin the State of Texas or transferredto a religious, educationalor charitableorganization for use exclusivelywithin this State.". ,Inan effort to obtain exemption, the following proposal was submltted,ina letter from William B. Butler, United States Attorney for the Southern District of Texas, by Norman W. Black, Assistant, dated July 13, 1960, addressed to Honorable Robert S. Calvert,.StateComptrollerof Public Accounts. "I.have informed the Department of Justice (and they have informed the Secre- tary of the Treasury) that Article 14.06 offers a possibilitywhereby the Unit@ States could,legally.avoidthe payment:~ of State InheritanceTaxes onthis Trust .': the tax is estimated at approximately 5400,000.00). The Secretary of the Treasury has suggested the following: arrangement,whereby the ,incomefrom the- bequest by the late Mrs. Clayton could ~1 be used exclusivelywithin the State:of Texas for the retirement of the National Debt. That proposed arrangement is as follows: "'The Treasury would make special arrangements.toreceive within the State ~ of Texas moneys representingincome de- rived from the Susan ,V.~ClaytonTrust No. 2 and would maintain them in a separate account in the name of the Treasurer of the United States in the State of Texas and not interminglethem with sny.other funds of the United States. Such moneys. would be used solely to redeem public debt obligationspresented to the 4’Waswy for redemption in the State ,ofTexas. "'Specifically,.the~,moneyswould.be paid to the United.Statesat the.#Federal preserveBank of Dallas; Texas, for credit ~to the Treasurer of the United States.: : The Treasurer would maintain a special '~ deposit account with.the Eederal Reserves, Honorable Robert S. Calvert,.Page3 Opinion No. WW-1003 Bank for these particularmoneys. This account would be separate from the account now maintained by the Treasurer with the Federal Reserve Bank of Dallas for General operatingpurposes. .The moneys thus received in Texas and held on deposit with the Federal Reserve Bank of Dallas would be identifiedspecially on the books of the Treasury to be available for retirementof the national debt. From time to time, as public debt obligationsare presented to the Federal Reserve Bank of Dallas for redemptionby that Bank as fiscal agent of the United States, the Treasury would direct the bank to redeem such obligations ~-fromthe moneys held on deposit In the.speclal account representingthe income from the bequest."' Opinion No. WW-922 reviewed the controllingcourt decisions and reached the following conclus-ion: "We think that the foregoing decisions demonstratethat the 'use1 contemplated by the statute is a direct, actual uses within the State for the benefit of and limited to its citizens. We,do not think that this requisite,usecan be satisfied by the~mere retention in the.State of funds devised for the retirement of the national debt. Any benefit which the ,~ residents of this State would receive under the proposed arrangementwould be `` at best an incidentalbenefit shared equally with all of,the residents of all other forty-nine states." In view of this conclusionexemption was denied. The United States, through Its appropriateofficials,has submitted another plan which It is urged would satisfy the requisite use withinthe State of Texas and result in exempting the bequest from any inheritancetax. We set out the plan, as submitted,below: "The Treasury would make special arrange- ments to receive within the State of Texas moneys representingincome derived from the Susan V. Clayton Trust No. 2 and would maln- tain them in a separate account ln.the name Honorable Robert S. Calvert,,P~age ~4 Gpinion~.No. ``-1003 of the Treasurer of the United States in the State of Texas and not intermingle them with any other funds of the..Unlted States. Such moneys would be used solely to redeem public debt obligationsowned by residents of the State of Texas pre- sented to the Treasury for redemption In the State of Texas. "Specifically,the moneys would be paid to the United States at the‘Fe.deralReserve Bank of Dallas, Texas, for credit to the Treasurer of the United States; The Treasurer would maintain a special deposit account with the Federal Reserve Rank forktheseparticular moneys. This account would be separate~.from the account now maintained by the Treasurer with the Federal Reserve Bank of Dallas.for~.. general operating purposes. The moneys thus received in Texas and held on depo~sitwith. the Federal Reserve Bank of Dallas.would be identified specially on the books of the Treasury to be available for retirementof the national debt. From time to time, as public debt obligationsowned by residents of the State of Texas are presented to the Federal Reserve Bankof Dallas for redemption by that bank as fiscal agent of theunited States, the Treasury would direct the-bank to redeem such obligationsfrom the moneys held on deposit in the special account repre- senting the Income from the bequest;", It is evident that the only differencebetween the pro- posal first submitted and the last proposal is that In using the trust income for the retirement of the National Debt, such use would be limited to the discharge of such public debt obligationsas are owned by residents of this State. Although the Government'sposition In connectionwith this new proposal is appealing on its face, we do not think it will bear analysis. True, only residents of,Texas will have obliga- tions of,the United States Governmentsatisifed from the bequest, but are we to assume that an obligation owned by a Texas re,- sident Is, for this reason, any less an obligationof the Govern- ment of the United States or that the Government'sliability is limited to this bequest or mustbe satisfiedtherefrom? Wherein lies any~benefitto Texas residents Lnthe satisfaction of these obligationsfrom this special fund rather than from any Governmentrevenues? Were,,we,to assume .thatthe Govern- HonorableRobert S. Calvert, Page 5 Opinion No. WW-1003 ment will default in whole or in part in the discharge of its obligations,Texas residents, as a result of the con- templated commitment,would have no added security for their loans. The proposed commitmentcould not so change the Government'sexisting contractualliability to all its creditorsnor effectuateany priority for Texas creditors. Finally, who will ultimatelybenefit from the retire- ment of part or all of the National Debt of the United States? Not just the creditorswho are repaid the loans that they have made to the United States. Rather, all of the citizens of the United States will benefit in the resulting diminutionof the tax burden which they must bear. We must, therefore,again conclude that any benefit which the residents of this State would receive under this last pro- posed arrangementwould be, at best, an incidentalbenefit shared equally with all of the residents of all the other forty- nine states. The requisite "use within this State" would not be satisfied,and exemption must be denied. SUMMARY A bequest in trust to the United States to be used for the retirementof the National Debt may not obtain exemption from inheritancetaxes by a commitment that the bequest will be used to redeem only public debt obligationsowned by Texas residents. Yours very truly, WILL WILSON Attorney General of Texas MMP:cm APPROVED: Marietta McGregor OPINION COMMITTEE: Assistant W. V. Geppert, Chairman William T. Blackburn Leon Pesek John C. Steinberger REVIEWED FOR THE ATTORNEY GENERAL By: Morgan Nesbitt