The opinion
( NI ERED AUG o 8 2014
STATE OF MAINE SUPERIOR COURT
KENNEBEC, SS. CIVIL ACTION
DOCKET NO. AP-13-32 -z~
KtN~VHfv1-AP-17-r
STATE TAX ASSESSOR,
Plaintiff
v. ORDER
EST ATE OF C. G. BERWIND et al.,
Defendants
Before the court is the petition for review and de novo determination filed by the
State Tax Assessor (Assessor), as director of Maine Revenue Services (MRS). The
Petition brought by the Assessor is pursuant to 36 M.R.S.A. § 151-D(10)(I), 5 M.R.S.A. §
11002, and M.R. Civ. P. 80(C), of the final administrative decision of the Board of
Taxation Appeals (BOTA) involving the assessment of a Maine estate tax. The
Respondent Estate (Estate) is the Estate of Charles G. Berwind Jr., who, at the time of his
death on November 3, 2010, was a Pennsylvania resident who owned real property in
Maine and Pennsylvania. The Estate filed a 2010 Maine Estate Tax Return dated
January 18, 2012 (Return), which reported Maine assets consisting of real property
valued at $12,250,000; tangible personal property at $1,116,540; and jointly held
property valued at $6,800 for a total of $13,373,340. The Return also noted an
outstanding mortgage balance on Maine real estate of $8,000,0002. On the Return, the
Estate reduced the value of its Maine real estate by the outstanding balance of the
mortgage and reported a resulting value of $5,373,338. The Maine Revenue Service
disallowed the entry of $8,000,002 as the balance on the mortgage to reflect the full
value of the Estate's Maine real property. The notice of assessment in April of 2012
against the Estate asserted a balance of $686,866.66 which consisted of the tax of
$1,290,090, interest of $32,256.26; penalties of $54,050.40 and a credit of $428,530.
The Estate requested reconsideration of the assessment arguing that the tax
portion of the assessment was unlawful under 36 M.R.S.A. § 4064 and M.R.S. Rule ?
601.07(D)(3) and requested an abatement of assessed penalties. Upon reconsideration
the MRS upheld the assessment in full. In November of 2012, the Estate filed a
statement of appeal with BOTA and requested an appeals conference pursuant to 36
M.R.S.A. § 151-D(lO)(A)-(G). After an appeals conference, the BOTA appeals officer
issued a recommended decision for consideration by the BOTA upholding the Maine
estate tax and interest portions of the assessment but abating the penalties of the
assessment. After hearing, the BOTA rejected the recommended decision and issued its
own decision which abated the assessment in its entirety. In June of 2013, the Assessor
sought reconsideration of the BOTA decision and the request was granted. In July of
2013, BOTA issued its decision on reconsideration affirming its original May 2013
decision. The final BOTA decision is the final administrative decision on appeal and is
subject to de novo appeal to the Superior Court. The Assessor has brought the de novo
appeal before this court. According to 36 M.R.S.A. § 151-D(10)(I), this court must make
its own de novo determination as to all questions of facts and law.
The parties have stipulated as the amounts above described. In addition, they
agree that the Estate was liable for the mortgages secured by the Maine real property,
that the sole proceeds of which were used for the purchase, repair, maintenance, or
improvement of the Maine real property. It is agreed that the Estate, citing M.R.S. Rule 7
607(D)(3) reduced the value of its Maine property taxable by Maine by the amount of
the outstanding balance of the mortgage. This affects the numerator of the fraction
2
called for in 36 M.R.S.A. § 4064 resulting in a percentage of property taxable by Maine
of 0.066082, while the Assessor, in not allowing the mortgage, asserts a percentage of
property taxable in Maine of 0.164468. The result then is net tax to Maine of $1,029,078,
rather than net tax of $413,476, as asserted by the Estate.
In construing the statutory language, the court looks first to the plain meaning of
the language· to give effect to legislative intent. Stromberg-Carlson Corp. v. State Tax
Assessor, 2001 ME 11, 765 A.2d 566. However, in determining plain meaning, courts
consider the whole statutory framework "so that a harmonious result, presumably the
intent of the Legislature, may be achieved." Id. In determining plain meaning, the
courts also avoid the absurd, illogical and inconsistent results, give words meaning
rather than treating them as meaningless or superfluous, and refrain from adding
language that is not there. Id.
It is clear from an examination of the Maine Tax Code as it relates to estate
taxation under the concept of a "federal credit" that the fundamental starting point of
the relationship in taxation of property between the state and the federal government
should be dependent on a like comparison of the Maine estate with the entire federal
estate. It would defy common sense to suggest that a different basis for property
located within this State as opposed to property located within and without the State
should not be the same. As a matter of fundamental principal, the court is obligated to
"make it work," unless to do so would be contrary to the specific statutory and
regulatory language.
The starting point is Department of the Treasury Form 706, United States Estate
Tax Return, filed in January of 2012 that indicates a total gross estate of $81,310,645.96.
It then deducts allowable deductions in the amount of $36,373,892.58, leaving a
3
tentative taxable estate of $44,937,826.38. In Part 5 of the Federal Return, the
recapitulation, Schedule K of said return, mortgages and liens in excess of $16,000,000
includes mortgage balances on Maine property of $8,000,002.28. Therefore, the
mortgage balance in question has been deducted from the Federal gross estate to arrive
at a taxable estate. It is the same mortgage balance the Estate has reflected in its
determination of value of the decedent's Maine real and tangible property in this State
as the numerator of the tax imposed by the State under 36 M.R.S.A. § 4064.
Under the terms of 36 M.R.S.A. § 4064, Maine property is subject to an estate tax
to the extent that such property is either included in the decedent's federal
gross estate or is Maine elective property. The amount of this tax is equal
to that proportion of the federal credit that the value of the decedent's
Maine real and tangible personal property in this State bears to the value
of the decedent's federal gross estate.
The federal credit, pursuant to 36 M.R.S.A. § 4062(1-A), "means the maximum credit
against the tax on the federal taxable estate for state death taxes determined under the
Code .... " 1
The federal gross estate is "the gross estate of a decedent as determined by the
assessor in accordance with the Code .... " In asserting the deduction for the mortgage
balance on the real estate, and utilizing the numerator in the formula called for in
36 M.R.S.A. § 4064, the Estate relies on a portion of the Code of Maine Regulations, :
18-125 C.M.R., ch. 601, § .07, sourcing property to Maine, the Estate in§ .07(D)(3) under
allocation of debt,
1
The court notes 36 M.R.S.A. § 4063 regarding the tax on an estate of a Maine resident. That provision
states,
The amount of this tax is equal to the federal credit multiplied by a fraction, the
numerator of which is the value of that portion of the decedent's federal gross estate that
consists of real and tangible personal property located in the State plus the value of all
intangible personal property and the denominator of which is the value of the decedent's
federal gross estate.
4
For nonresident decedents, the Maine estate tax is applied to the total
value of the real and tangible personal property treated as owned by the
decedent situated in Maine as of the date of the decedent's death. If
Maine real property is encumbered, orlly the direct debt against the
property (i.e., the debt used for the purchase, repair, maintenance or
improvement of that property) is an allowable deduction.
1
•
That provision must be read in light of 18-125 C.M.R. ch. 601, § .01, where subsection B
describes allowable deductions "means deductions from the federal gross estate as
authorized under the Code in calculating the federal taxable estate, excluding the state
death tax deduction." Indeed, the Estate did use the mortgage balance as described
under 18-125 C.M.R. ch 601, § .07(D)(3) as a deduction from the federal gross estate on
the federal tax return. In the instant circumstance, the Estate wishes to further deduct
that under the language of that Rule for purposes of the full §4064 ratio. Because the
word "gross" is not recited regarding the Maine real estate, the Estate argues it must
mean net of debt.
First, the court again revisits 36 M.R.S.A. § 4062, where it finds a definition under
subsection 8-A of value, "When determining value for purposes of this chapter, 'value'
means, with respect to an estate or to property included in an estate, including Maine
qualified terminable interest property, the value as determined by the assessor in
accordance with the Code." There is nothing in the evidence or in the statutory scheme,
to suggest that there is more than one definition of "value" for all Maine estate tax
purposes. Further, if the numerator is the net value of decedent's Maine real estate and
the denominator is to be the gross value of the decedent's federal gross estate, it would
create an anomaly. It further would create a disconnect between the consideration of
Maine property versus total property if different for a nonresident.
The court is satisfied that the language as it is contained in 18-125 C.M.R. ch. 601,
5
§ .07(D)(3), is a term defining Maine law with regard to the nature of real property
encompassed to be utilized in the determination of the deduction from federal gross
estate. Limiting such debt to a direct debt, i.e., mortgage, for proceeds used for the
"purchase, repair, maintenance, or improvement of the Maine real property," it does
not modify section 4064 as to "the value of the decedent's Maine real and tangible
personal property" as it appears in 36 M.R.S.A. § 4064.
The Assessor asks the court to reestablish the assessed penalty pursuant to
36 M.R.S.A. § 187-B(7) (2010) that denies the assertion that the Estate had "substantial
authority" sufficient to warrant abatement of the penalty. First, the Petitioner notes that
the burden of establishing substantial authority is on the Estate. 36 M.R.S.A. § 187-B(7).
The court's substantial authority "is an objective standard defined requiring the
analysis of the applicable law and the facts of the particular case." John Swenson Granite,
Inc. v. State Tax Assessor, 685 A.2d 425 (Me. 1996). Substantial authority also means the
weight of authority supporting the estate's position is substantial in relation to whether
the authorities support the assessment. ld.
The Estate argues that it was merely complying with the Assessor's own rule in
deducting the mortgage debt, citing 601 § .07(D)(3). It also argues that the Assessor
should waive or abate the penalties "for reasonable cause." The Estate finally argues
that the Board of Tax Appeals ruled in the taxpayer's favor in relying on the same rule
and suggest that the BOTA decision constitutes substantial, and in fact, overwhelming
authority justifying the Estate's filing position.
The court finds that the difference between the submitted Maine estate tax of
$413,476 and the Assessor-found Maine estate tax of $1,029,078 to be substantial.
Notwithstanding the decision and analysis of BOTA, it appears to this court to be
6
obvious that the language relied on by the Estate of the allocation of debt, found in 18-
125 C.M.R. ch. 601, § .07(D)(3) describes "an allowable deduction" which is specifically
defined by its words in 18-125 C.M.R. ch. 601, § .01, meaning deductions from "the
federal gross estate." It appears to stretch the imagination that it could be considered in
light of those two provisions that somehow this allowable deduction is to be made from
the value of the decedent's Maine real and tangible personal property in this State as
found in 36 M.R.S.A. § 4064.
For the reasons herein stated, the entry will be:
The appeal of the State Tax Assessor is SUSTAINED, the decision of
Maine Board of Tax Appeals, docket number BTA-2012-5 issued May 18, 2013,
and its decision on reconsideration dated July 18, 2013, are OVERRULED; the
matter is REMANDED to the State Tax Assessor for recalculation of interest.
JULY 7, 2014
Donald H. Marden
Superior Court Justice
7
Date Filed 7/22/13 Kennebec Docket No. AP-13-32
County
Action: Petition for Review J. Nivison J. Marden
soc
State Tax Assessor vs. Estate of C. G. Berwind and
Maine Board of Tax Appeals
Plaintiff's Attorney Defendant's Attorney
Scott Beak, AAG Robert A. Creamer, Esq. (Board of Tax
6 State House Station 134 State House Station Appeals)
Augusta, ME 04333-0006 Augusta, ME 04333-0134
Jonathan A. Block, Esq. (Estate of C. G.
254 Commercial Street Berwind)
Portland, ME 04101
Date of Entry
7/22/13 Petition for Review and De Novo Determination, filed. s/Boak, AAG
8/6/13 Letter stating that Maine Board of Tax Appeals does not think they are a party to this case
and does not intend to take part in this case unless instructed to do so by the court, filed
(7/2/13). s/Creamer, Esq.
8/6/13 Entry of Appearance for Estate of C. G. Berwind, filed (8/1/13). s/Biock, Esq.
8/13/13 Copies of certified mail return receipts, filed 8/8/13. s/Boak, AAG
8/13/13 Original certified mail return receipts, filed. s/Boak, AAG
- Jonathan Block, Esq, date of delivery 7/23/13.
-Robert Creamer, Esq., date of delivery 7/23/13.
-Arthur Solmssen, Jr., Esq., date of delivery 7/24/13.
9/24/13 Phone conference scheduled on 9/30/13 at 12: 15 with J. Nivison.
10/3/13 Phone conference held on 9/30/13 with Justice Nivison.
Follow up conference to be held 12/10/13 at 8:15 with J. Nivison.
12/17/13 Phone conference held. Scheduling Order issued- No later than 12/31/13, the parties
shall file with the court an agreed-upon set of stipulated facts and exhibits.
Copy to AAG Beak and Atty Block.
1/03/14 Joint Stipulation of Facts and Exhibits 1-18, filed (12/31/13). s/Boak, AAG
1/30/14 State Tax Assessor's Brief on Stipulated Record, filed 1/29/14. s/Boak, AAG
1/31/14 Estate of C.G. Berwind Brief, filed (1/30/14). s/Biock, Esq.
Page 1 AP-13-32
2/7/14 State tax Assessor's Reply Brief, filed. s/Boak, AAG
2/7/14 Estate of C.G. Berwind Brief, filed. s/Biock, Esq.
3/25/14 Hearing on Oral Argument scheduled April24 1:00p.m.
Copy sent to AAG Boak, Atty Creamer, Atty Block
4/28/14 Oral argument held (4/24/14), J. Marden presiding.
Scott Boak, AAG; Jonathan Block, Esq.
Tape 1842 Index 2839-3989
Under Advisement.
7/8/14 ORDER, Marden, J. (7/7/14)
The appeal of the State Tax Assessor is SUSTAINED, the decision of Maine Board of
Tax Appeals, docket number BTA-2012-5 issued May 18, 2013, and its decision on
reconsideration dated July 18 2013, are OVERRULED; the matter is REMANDED to the
State Tax Assessor for recalculation of interest.
Copy to AAG Boak, Atty Creamer, Atty Block
Copy to repositories.
Page 2 AP-13-32