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 June 19, 2006, requesting advice as to certain issues relating to the Connecticut estate tax that arise from legislation enacted by the General Assembly in 2005.  In particular, you ask for an opinion as to whether the approach that the Department intends to take in administering the estate tax “properly reconciles all of the provisions of this legislation and reconciles those provisions with the holdings of the United States Supreme Court.”  Having reviewed the relevant statutory language, it is our opinion that the approach outlined in your letter, and described in detail below, reflects an appropriate interpretation of the estate tax law.

Background

Your letter describes in detail the history of the Connecticut estate tax and developments that led up to the 2005 legislation, which is summarized here.    Connecticut has long had an estate or succession tax.  Generally speaking, the tax has applied to real and tangible personal property located in Connecticut and to intangible personal property wherever located.   See, e.g., Conn. Gen. Stat. §§ 2020, 2065 (1949 Rev.).

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.  Id. at 489.  This constitutional limitation on a state’s estate tax authority was reaffirmed subsequently in Treichler v. Wisconsin, 338 <st2:country-region>U.S.</st2:country-region> 251, 256 (1949). 

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., Conn. Gen. Stat. § 12-391 (2005).  Thus, so long as the total of all state estate taxes did not exceed the allowable credit under the federal estate tax, there would be no increase to an estate’s aggregate federal and state tax even if a state taxed property outside its jurisdiction.  Under this approach, estates had little incentive to challenge a state tax because its total tax liability remained the same; only the respective federal and state shares of the total were altered.

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 Connecticut, that retained an estate tax were significant.  Now, any state estate tax is an additional cost to an estate. 

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 Conn. Gen. Stat. § 12-391 (2006 Supp.), imposes a tax on the transfer of the estate of decedents who died on or after January 1, 2005, and were residents of Connecticut at the time of death.  Id., § 12-391(d)(1).  No estate tax is due unless the amount of the “Connecticut Taxable Estate” exceeds $2 million.  Id., § 12-391(g).  The Connecticut Taxable Estate is defined as (1) the gross estate less allowable deductions under federal tax law (excluding the deduction for state death taxes), and (2) the aggregate amount of all Connecticut taxable gifts made by the decedent for all calendar years beginning on or after January 1, 2005.  Id., § 12-391(c)(1). 

          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.  Id., § 12-391(d)(2). 

          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.”  Id., § 12-391(d)(3).

          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 Connecticut taxable estate by a fraction, the numerator of which is the value of that part of the decedent’s gross estate over which this state has jurisdiction for estate tax purposes and the denominator of which is the value of the gross estate.  Id., § 12-391(e)(1).  The property of a nonresident estate over which this state has jurisdiction for estate tax purposes includes real property and tangible personal property in Connecticut.  Id., § 12-391(e)(2). 

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 Connecticut has jurisdiction. 

Analysis

          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. Hartford, 259 Conn. 729, 735 (2002).  That intent is initially ascertained from the text of the statute itself and its relationship to other statutes; extratextual evidence of intent is not considered unless, from the examination of the statutory text and its relationship to other statutes, the statute’s meaning is ambiguous or yields absurd or unworkable results.  Conn. Gen. Stat. § 1-2z.  When a statute is not plain and unambiguous, guidance may be sought in the legislative history, the circumstances surrounding its enactment, and the legislative policy it was intended to implement.   Cogan v. Chase Manhattan Auto Fin. Corp., 276 Conn. 1, 7 (2005). 

          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. New Haven, 257 Conn. 481, 494 (2001).  If a literal construction of a statute raises serious constitutional questions, an alternative that accomplishes the legislature’s purpose without risking the statute’s invalidity should be adopted.  Roth v. Weston, 259 Conn. 202, 233 (2002).  Under the U.S. Supreme Court’s decisions in Frick and Treichler, a state may not impose an estate tax on real or tangible personal property located in another state.²  Frick, 268 <st2:country-region>U.S.</st2:country-region> at 489; Treichler, 338 <st2:country-region>U.S.</st2:country-region> at 256.  This constitutional limitation is in effect codified in Public Act 05-251, which limits the scope of Connecticut’s estate tax jurisdiction to “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.”  Conn. Gen. Stat. § 12-391(d)(3).     

          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.  Conn. Gen. Stat. § 12-391(d)(1) (2006 Supp.).  The amount of the tax is determined using a statutory schedule, which sets the tax rate based on the amount of the “Connecticut Taxable Estate.”  Id., § 12-391(g).  Connecticut Taxable Estate is defined as the gross estate for federal estate tax purposes, less any applicable federal deductions and the amount of any Connecticut taxable gifts under § 12-643.³  Id., § 12-391(c)(1) – (3).  To this point, the Connecticut Taxable Estate, on which the rate of the tax is calculated, is effectively the same as it would be for federal estate tax purposes (less Connecticut taxable gifts). 

          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.  Id., § 12-391(d)(2). 

Plainly, the purpose of this provision was to provide a mechanism for apportioning the Connecticut tax so that it would not be imposed on that part of the estate that was beyond Connecticut's jurisdiction to tax.  This is accomplished by reducing the tax due by either the amount of estate taxes paid to other states or by a ratio considering the value of real and tangible personal property outside of Connecticut as compared to the total value of the estate.  This provision was taken from the prior estate tax law that was based on the amount of the federal estate tax credit for state estate taxes. See Conn. Gen. Stat. § 12-391(a) (2005). 

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, Connecticut would be taxing the entire estate, including property outside of its taxing jurisdiction. This Connecticut cannot do consistent with Frick and Treichler. 

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 Connecticut, along with all intangible property.  This statutory limitation essentially codifies the Frick-Treichler exclusion of real and tangible personal property located in another state.  Conn. Gen. Stat. § 12-391(d)(3).  In other words, the legislature expressly intended to restrict the reach of the estate tax to only “real property situated 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.”  Id.  The tax cannot extend beyond this statutory and constitutional limitation of the State’s jurisdiction.  Therefore, even if no reduction in the tax otherwise due on the Connecticut Taxable Estate is required by § 12-391(d)(2), an adjustment must be made in compliance with § 12-391(d)(3)’s limitation.  To construe the statute otherwise would raise questions of the statute’s constitutional validity and would render the jurisdictional limitation in § 12-391(d)(3) a nullity, both of which are results to be avoided under the rules of statutory construction.  Roth, 259 Conn. at 233; Carmel Hollow Assocs. Ltd. Ptshp. v. Bethlehem, 269 Conn. 120, 135 (2004). 

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 Connecticut.  This is the only reasonable construction of the statutory language, and it ensures the constitutionality of the estate tax.

Conclusion

          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,

RICHARD BLUMENTHAL
ATTORNEY GENERAL

Mark Kohler
Assistant Attorney General