ESTATE OF BARRY A. ACKERLEY, Appellant,
WASHINGTON DEPARTMENT OF REVENUE, Respondent.
Estate and Transfer Tax Act, chapter 83.100 RCW, makes clear
that calculating a Washington taxable estate begins with the
federal taxable estate and that the Washington definition of
"transfer" is the same as the federal definition.
Under federal estate tax law, the gift tax paid is included
in the taxable estate under the "gross-up rule"
and, as such, is transferred upon death as part of the entire
estate. Following the legislature's clear mandate, we
must also find that the gift tax paid is part of the
Washington taxable estate and transferred upon death as part
of the entire estate. Thus, the Washington State Department
of Revenue (DOR) properly included the gift tax paid in its
assessment of Barry Ackerley's estate. We affirm the
decision of the Thurston County Superior Court.
facts in this case are not in dispute. Ackerley died on March
21, 2011. In 2008 and 2010, Ackerley made substantial gifts
of money. On these inter vivos gifts, Ackerley paid the
required federal gift taxes, which amounted to over $5.5
million. Upon his death, Ackerley was required under the
federal estate tax code to include the value of the gift
taxes paid in his federal taxable estate because he died
within three years of making the gifts. Ackerley's estate
thus included the gift taxes in its federal estate tax
return. But when Ackerley's estate filed his Washington
estate tax return, it did not include the $5.5 million in
federal gift taxes paid as part of the Washington taxable
estate. DOR issued a notice of assessment, notifying
Ackerley's estate that it owed additional Washington
estate taxes on the amount of federal gift taxes paid.
estate petitioned for review under the Washington
Administrative Procedure Act (APA) in Thurston County
Superior Court. See RCW 34.05.514. The superior
court held that Ackerley's estate was required to pay
Washington estate tax on the federal gift taxes paid because
those federal gift taxes paid fall within the definitions of
"transfer" and "Washington taxable
estate." Ackerley's estate appealed, and the Court
of Appeals certified the case to this court for direct
Standard of review
appeal of a final agency action, the APA governs review of
this case. See RCW 34.05.570(4). This court on
appeal sits in the same position as the superior court in
reviewing the administrative record. See Verizon Nw.,
Inc. v. Emp't Sec. Dep't, 164 Wn.2d 909, 915,
194 P.3d 255 (2008). A reviewing court may grant relief from
agency action if such action is "(i) Unconstitutional;
(ii) Outside the statutory authority of the agency or the
authority conferred by a provision of law; (iii) Arbitrary
and capricious; or (iv) Taken by persons who were not
properly constituted as agency officials lawfully entitled to
take such action." RCW 34.05.570(4)(c). Here,
Ackerley's estate argues that DOR acted outside its
statutory authority. See RCW 34.05.570(4)(c)(ii).
Whether an agency has exceeded its statutory authority, as
well as the proper interpretation of the underlying statutes,
are questions of law that this court reviews de novo.
Chi. Title Ins. Co. v. Office of Ins.
Comm'r, 178 Wn.2d 120, 133, 309 P.3d 372 (2013);
Dep't of Ecology v. Campbell & Gwinn,
LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002).
interpret statutes, our goal is to determine the
legislature's intent by giving effect to the plain
meaning of the statute, gleaned both from the words of that
statute and those in related statutes. Campbell &
Gwinn, 146 Wn.2d at 10-11. We consider the ordinary
meaning of the words, any statutory definitions provided, the
context of the statute, related provisions, and the statutory
scheme as a whole. Bank of Am., NA v.
Owens, 173 Wn.2d 40, 53, 266 P.3d 211 (2011) (quoting
Christensen v. Ellsworth, 162 Wn.2d 365,
373, 173 P.3d 228 (2007)).
federal gift tax paid is included in both the "federal
taxable estate" and "Washington taxable
estate" because the legislature clearly defined the two
as the same
case concerns the intersections between the Washington and
federal estate tax systems. Thus, at the outset, it is
important to appreciate the close relationship between these
two systems. Prior to 2001, Washington did not have an
independent estate tax system. Instead, it participated in a
federal "pickup" tax system. In re Estate of
Hambleton, 181 Wn.2d 802, 810, 335 P.3d 398 (2014). But
when Congress passed legislation in 2001 to gradually
eliminate the pickup tax system, Washington responded by
creating its own estate tax. Id. This court
invalidated the legislature's first attempt at revising
the existing statutes, and the legislature enacted a
stand-alone estate tax in 2005. Id; see also Estate of
Hemphill v. Dep't of Revenue, 153 Wn.2d 544, 551,
105 P.3d 391 (2005); LAWS OF 2005, ch. 516 (the Estate and
Transfer Tax Act).
the 2005 act established a stand-alone estate tax, the tax
was still tied to a large extent to the federal estate tax
code. See RCW 83.100.020(7) (defining Washington
"gross estate" the same as federal); In re
Estate of Bracken, 175 Wn.2d 549, 581, 290 P.3d 99
(2012) (Madsen, C.J., concurring/dissenting) (noting that the
2005 act ties state estate taxation to federal law to a large
extent). By incorporating the federal definition of
"taxable estate, " the legislature relied on
"the extensive and exhaustive detailed federal statutory
scheme that contains the directions for what to include in
the gross estate." Bracken, 175 Wn.2d at 583
(Madsen, C.J., concurring/dissenting). Because of the
legislature's decision to incorporate much of the federal
estate tax scheme, the starting point when analyzing an
estate tax in Washington is the federal taxable estate.
relevant question here is thus whether the federal gift tax
paid is part of the federal taxable estate and, in turn, part
of the Washington taxable estate. The federal government
assesses estate taxes on gift taxes paid within three years
of death under the gross-up rule. See 26 U.S.C.
§ 2035(b); Estate of Morgens v. Comm'r, 678
F.3d 769, 770 (9th Cir. 2012); Brown v. United
States, 329 F.3d 664, 668 (9th Cir. 2003). Because the
federal gift tax paid at issue here was part of the federal
taxable estate, and because the legislature clearly
incorporated the definition of "federal taxable estate,
" it follows that the federal gift tax was also part of
the Washington taxable estate.
analysis involves multiple interrelated statutes. RCW
83.100.040(1) outlines the tax rate for the estate tax to be
imposed on "every transfer of property located in
Washington, " along with property outside of Washington
at a fractional rate. The "Washington taxable
estate" is defined as the federal taxable estate. RCW
83.100.020(15). In turn, "federal taxable estate"
is defined as the taxable estate as determined under chapter
11 of the Internal Revenue Code. RCW 83.100.020(6).
11 of the Internal Revenue Code contains many provisions
relating to what property is in the gross estate, how to
value different property, and what adjustments and deductions
to make. 26 U.S.C. §§ 2031-2058. Relevant to the
present case, the federal gross estate includes the amount of
any tax paid on any gift made by the decedent during the
three-year period prior to his death. 26 U.S.C. §
2035(b); see also Estate of Armstrong v. Comm'r,
119 T.C. 220, 227-28 (2002).
federal gift tax paid is thus part of the federal taxable
estate. And because the two are defined as the same, the gift
tax paid is also part of the Washington taxable estate. DOR