Attorney General's Opinion
Attorney General, Richard Blumenthal
August 1, 2006
Honorable Pam Law
Department of Revenue Services
25 Sigourney Street
Hartford, CT 06106
Dear Commissioner Law:
This opinion is in response to your letter dated
Your letter describes in detail the history of the
This approach to the estate tax was consistent with Supreme Court precedent. In Frick v. Pennsylvania, 268 U.S. 473 (1925), the Supreme Court struck down as a violation of the Due Process Clause a state inheritance tax imposed on real and tangible personal property located outside the taxing state. The Court held that a state may not give its tax laws “extraterritorial operation,” and that real and tangible personal property is subject to taxation only in the state in which it has an actual situs, regardless of the domicile of the owner.
The federal government also imposed an estate tax, but provided a credit for any death taxes payable to a state. As a result of this credit, states were able to impose an estate tax up to an amount equal to the federal credit without increasing the overall tax burden on the estate. Not surprisingly, almost every state imposed an estate tax that equaled the federal credit. Most states, including Connecticut, reduced the state estate tax by the lesser of (a) the amount of any estate tax imposed by another state on property located in that other state, or (b) the proportion of the estate tax otherwise due that was attributable to the value of the decedent’s estate located outside the state. See, e.g.,
All this changed with the enactment of the federal Economic Growth and Tax Relief Reconciliation Act of 2001, which phased out the federal credit for estate taxes. In response, many states repealed their estate tax. The ramifications of these changes for a state, like
Public Act 05-251
In 2005, the General Assembly enacted Public Act 05-251, creating a “unified” gift and estate tax.1 The legislation, codified at
As was the case with the prior Connecticut estate tax, the amount of the estate tax due may be reduced by the lesser of (a) the amount of any taxes paid to another state, or (b) an amount computed by multiplying the tax otherwise due by a fraction consisting of a numerator representing the value of the decedent’s gross estate over which another state has jurisdiction for estate tax purposes and a denominator representing the total value of the decedent’s gross estate.
In addition, Public Act 05-251 provides that the “[p]roperty of a resident estate over which this state has jurisdiction for estate tax purposes includes real property in this state, tangible personal property having an actual situs in this state and intangible personal property owned by the decedent, regardless of where it is located.”
As has been the case since 1997, a tax is also imposed on nonresident estates. That tax is calculated by multiplying the amount of tax otherwise applicable to the decedent’s
The Department’s Approach
Your letter outlines an approach that you believe best comports with the legislative intent in enacting Public Act 05-251 and the constitutional restrictions on a state’s taxing powers. In sum, for resident estates with real or tangible personal property located outside of Connecticut, your approach would require the estate tax otherwise due to be multiplied by a fraction, the numerator of which is the portion of the gross estate over which Connecticut has jurisdiction for estate tax purposes – that is, the value of the real and tangible personal property located in Connecticut and the value of all intangible personal property as defined in 12-391(d)(3) – and the denominator of which is the amount of the gross estate. This would result in a tax on only that portion of the value of the gross estate over which
Public Act 05-251 contains some ambiguities, apparently the result in part of a mixing-and-matching of prior statutory language with changes needed to respond to the phase out of the federal credit for state estate taxes. Our task is to construe the statutory language in a manner that is consistent with the apparent intent of the legislature. Perodeau v.
In this case, we also must view the statute through the lens of controlling precedent on the constitutional limitations on a state’s power to tax. The legislature is presumed to intend a constitutional result. Giaimo v.
We start with the language of the statute. A tax is imposed on the estate of each person who was a resident of the state at the time of death.
Section 12-391(d)(2) provides for a reduction of the tax due on the Connecticut Taxable Estate if the estate includes real or tangible personal property located outside of Connecticut and is subject to an estate tax in another state. The reduction is the lesser of (a) the amount of estate tax paid to another state; or (b) an amount calculated by multiplying the tax otherwise due by a fraction consisting of (i) a numerator representing the value of the gross estate over which another state would have jurisdiction to the same extent Connecticut would assert jurisdiction for estate tax purposes (i.e., the value of real or tangible personal property located in such state), and (ii) a denominator representing the total value of the gross estate.
Plainly, the purpose of this provision was to provide a mechanism for apportioning the
If this were the end of the statutory framework, serious constitutional issues might arise. First, the reduction in § 12-391(d)(2) applies only if the property located outside of Connecticut’s taxing jurisdiction is subject to the estate tax of another estate. Even if the reduction were available for estates with out-of-state property not subject to another state’s tax, the reduction will be zero (the lesser of the estate tax paid to another state or the ratio reflecting the portion of the estate that is out-of-state property). In effect,
However, this is not the end of the statutory framework. The legislature expressly provided a statutory limitation on the State’s estate tax jurisdiction limiting that jurisdiction to real or tangible property in
The methodology that you propose for estates with property outside of Connecticut but not subject to the other states’ tax – multiplying the tax otherwise due on a resident Connecticut Taxable Estate by a fraction, the numerator of which is the value of the real and tangible personal property located in Connecticut and the value of all intangible personal property, wherever located, and the denominator of which is amount of the gross estate – fully accomplishes the legislature’s intent.4 It assures that the tax will not be imposed on real or tangible personal property outside of
In conclusion, your proposed approach to the administration of the estate tax reflects an appropriate interpretation of the new estate tax law. However, because the issue is not entirely free from doubt, you may want to consider seeking clarifying legislation from the General Assembly. In that case, we stand ready to assist you in proposing such legislation.
Very truly yours,
Assistant Attorney General
1 As you describe in your letter, the tax is “unified” in the sense that the calculation of the estate tax takes into account Connecticut taxable gifts as well as the Connecticut gift tax paid on Connecticut taxable gifts.
2 As you noted, the Supreme Court’s approach under the Due Process Clause to state taxation has shifted somewhat since
3 The statute provides that in the event that the federal estate tax is repealed, all references are to the federal tax law in force on the day prior to repeal.
4 This approach is also consistent with the treatment of nonresident estates, which is essentially the mirror image of this approach for resident estates.