In Estate of Odle v. Ind. Dep’t of State Rev. (June 28, 2013),  the Estate appealed the Hamilton Superior Court’s determination that the beneficiaries under Odle’s will were properly classified as Class B and C transferees for Indiana inheritance tax purposes.  In its appeal, the Estate argued that the classification of beneficiaries violates various provisions of the Indiana Constitution.

Odle died testate in 2009.  In filing its inheritance tax return, the Estate classified each beneficiary as either Class B or C.  The probate court accepted the return as filed.  The Estate filed a refund claim with the Department approximately four months later, asserting that all beneficiaries should have been Class A.  The Department denied the refund claim on the same day.  The denial was appealed to the probate court, which rejected the claim following a hearing.  The Estate appealed to the Tax Court.  The Court acts as a true appellate tribunal when reviewing a probate court’s determination concerning inheritance tax.

Inheritance tax is imposed on a transferee’s right to succeed to a decedent’s property, rather than on the property itself.  Slip op. at 3 (citations omitted).  The amount of tax due is based on the fair market value of the property interests transferred and the relationship between the decedent and the transferee.  The relationships are categorized by Class.   For example, Class A transferees include children and grandchildren, Class B transferees include siblings, nieces and nephews, and Class C transferees include all others (except a surviving spouse).  The amounts subject to tax and the applicable tax rates vary depending on the Class, with Class A transferees receiving the most favorable treatment.  See Slip op. at 4 (citations omitted).

Article 1, Section 1 and Article 1, Section 23 The Department argued that the Indiana Supreme Court’s decision in Crittenberger v. State Savings & Trust. Co., 127 N.E. 552 (Ind. 1920) found Indiana’s inheritance tax scheme to be constitutional.  The Tax Court observed that “[c]ourts should not pass upon constitutional questions and declare statutes invalid unless a decision upon that very point becomes necessary to the resolution of a cause.”  Slip op. at 5 (citation omitted).  The Court concluded that Crittenberger “clearly provides that inheritance tax classification schemes that distinguish between lineal relatives, collateral relatives and strangers are both equitable and reasonable when the classification and statutory schemes operate on the classes uniformly.” Slip op. at 6 (citing 127 N.E.2d at 555-56).  This resolved the Estate’s arguments under Article 1, Section 1 (stating that “all people are created equal”) and Article 1, Section 23 (the Privileges and Immunities Clause).

Article 1, Section 12.   This provision provides in part: “All courts shall be open . . . .  Justice shall be administered freely, and without purchase.”  The General Assembly provided the Estate four alternative remedies to challenge the determination and collection of inheritance tax, and it was able to present its claims to both the probate court and Tax Court “in written motions, written briefs, and oral argument.”  Slip op. at 8.  Thus, the Estate failed to prove that the “inheritance tax classification scheme violates Section 12 by imposing inequitable administrative costs and remedies.” Id.

Article 4, Section 22.  Under this section, the enactment of “local” or “special” laws regarding (among other things) “the assessment and collection of taxes for State, county, township, or road purposes” is prohibited.  Slip op. at 9.  The Court held that the statutes classifying beneficiaries for the determination and collection of inheritance tax were general laws “because they apply to beneficiaries throughout the entire state in the same manner.”  Id.

Article 1, Section 35.  The Indiana Constitution states that the General Assembly “shall not grant any title of nobility, nor confer hereditary distinctions.”  The Estate claimed that the inheritance tax classification scheme grants benefits to individuals based on “birth alone.”  But the Estate failed to adequately develop the argument, so the Court declined to address it.  Slip op. at 2 n.1.

Note:  The Department’s web site, see http://www.in.gov/dor/3807.htm (last visited July 8, 2013) notes:

Indiana’s inheritance tax was repealed for individuals dying after Dec. 31, 2012. No inheritance tax returns (Form IH-6 for Indiana residents and Form IH-12 for nonresidents) have to be prepared or filed. No tax has to be paid. In addition, no Consents to Transfer (Form IH-14) personal property or Notice of Intended Transfer of Checking Account (Form IH-19) are required for those dying after Dec. 31, 2012.