S058252, Opinion — Force v. Dept. of Rev.

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Rebecca Gwen FORCE,
Personal Representative of the
Estate of William R. Pierson, Deceased,
Plaintiff-Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant-Respondent.
(TC 4886; SC S058252)
350 P3d 179

Plaintiff, the personal representative of the estate of decedent, William
Pierson, appeals a judgment of Oregon Tax Court, asserting that the Tax Court
erred in granting summary judgment to the Department of Revenue (the depart-
ment) requiring the estate to pay $26,767 in state inheritance tax, including pen-
alties and interest. ORS 118.010(2) provides that the amount of the state inheri-
tance tax is "the maximum amount of the state death tax credit allowable against
the federal estate tax under section 2011 of the Internal Revenue Code" and ORS
118.100(1) provides that the tax assessed pursuant to that section is due when "the
federal estate tax is payable." Plaintiff argues that the estate owes no state inher-
itance tax because the Internal Revenue Service (IRS) determined that no federal
estate tax was due and the state death tax credit was zero. Held: Under ORS
118.010(2), the amount of state inheritance tax liability is determined by applying
the pre-2001 federal tax code. ORS 118.007. Therefore, the IRS determination that
the estate was not entitled to a state death tax credit is irrelevant to the calculation
required under ORS 118.010(2) because the IRS applied the current version of the
federal tax code, not the pre-2001 version. Additionally, the due date for state
inheritance tax under ORS 118.100(1) is not dependent on the estate actually pay-
ing federal estate tax, but sets the due date for the date when the federal estate tax
would be payable if federal estate tax were incurred by the estate after applying the
pre-2001 federal tax code.

The judgment of the Tax Court is affirmed.

En Banc

On appeal from the Oregon Tax Court.

Henry C. Breithaupt, Judge.

David C. Force, argued the cause and submitted the briefs
for appellant.

Douglas Adair, Senior Assistant Attorney General,
Salem, argued the cause for respondent. With him on the
brief was John R. Kroger, Attorney General.

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LANDAU, J.

The judgment of the Tax Court is affirmed.

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# LANDAU, J.

At issue in this case is the inheritance tax liability of
the estate of decedent, based on the value of a farm that he
owned at the time of his death. Plaintiff, the personal repre-
sentative of the estate, concluded that the estate owes no
state inheritance tax. The Department of Revenue (depart-
ment) disagreed, concluding that the estate owes $26,767,
plus penalties and interest, and issued a notice of deficiency
in that amount. Plaintiff then initiated this action in the
Oregon Tax Court challenging the deficiency notice. The par-
ties filed cross-motions for summary judgment based on the
undisputed facts. The Tax Court granted the department's
motion, denied plaintiff's, and entered judgment in favor of
the department. Plaintiff appeals, seeking reversal of the
judgment and a determination that the estate owes no
Oregon inheritance tax. We affirm the decision of the Tax
Court.

# I. BACKGROUND

## A. The Regulatory Context

To provide context for the parties' dispute, we begin
with a brief summary of the applicable federal and state tax
laws, before turning to the facts of this case and the Tax
Court's decision.

For many years, the amount of Oregon inheritance
tax that an estate was obligated to pay was determined by
reference to federal estate tax law, as provided in the
Internal Revenue Code (IRC) and its implementing regula-
tions. In brief, the federal estate tax was determined by a
three-step process.

First, the value of a taxable estate had to be estab-
lished. IRC § 2051 (2000). Depending on the nature of the
property, some portion of its value could be exempt. For
example, under IRC § 2032A (2000), a large portion of the
value of family farms was exempt from estate taxation, pro-
vided that the land continued to be operated as a farm for at
least 10 years; if the farm was later sold or was put to some-
thing other than a qualified use before the end of the 10-year
period, an additional tax accounting for the amount that was
exempted was imposed, IRS § 2032A(c)(1) (2000), which was

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due six months after the date the property was sold or put to
a nonqualified use, IRC § 2032(c)(4) (2000).

Second, an estate tax had to be determined. IRC
§ 2001 (2000). The amount of the tax was determined by ref-
erence to a tax table keyed to various ranges in value of the
taxable estate.

Third, the resulting tax could be reduced by appli-
cable tax credits, two of which are relevant to this case. One,
known as the "unified credit," applied under IRC § 2010
(2000) to the estate of any decedent. The other, known as the
"state death tax credit," applied under IRC § 2011 (2000) if
the estate was subject to any state death tax (not all states
impose death taxes). The state death tax credit was deter-
mined by reference to a maximum amount allowable-a per-
centage of the value of the taxable estate-subject to reduc-
tion depending on the size of the unified credit in relation to
the estate's tax liability; the actual amount of a state death
tax credit could be smaller than the maximum allowable, for
example, to avoid creating entitlement to a refund. IRC
§ 2011(f) (2000). The net tax was then due and payable nine
months from the date of the decedent's death. IRC § 6075(a)
(2000); Treas Reg § 20.6075-1 (2000); Treas Reg § 20.6151-1
(2000).

Under Oregon law, the state inheritance tax liability
was then directly tied to the federal estate tax liability, both
as to amount and as to the date on which any state inheri-
tance tax was to be paid. Concerning the amount, ORS
118.010(2) provided that the state inheritance tax "shall
equal the maximum of the state death tax credit allowable
against the federal estate tax under section 2011 of the
Internal Revenue Code." Concerning the timing of payment,
ORS 118.100(1) provided that state inheritance tax "shall be
paid to the Department of Revenue on the date that the fed-
eral estate tax is payable," which, under the law at the time,
was generally nine months after the date of death. See OAR
150-118.100(1) (2000) (referring to federal regulations con-
cerning timing of payment). Both of those provisions were
enacted in 1997 and remain in their original form to date. Or
Laws 1997, ch 99, §§ 7-8.

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In 2001, Congress significantly amended the federal
estate tax statutes. In the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub L No 107-16, 115 Stat 38 (cod-
ified as amended in scattered sections of 26 USC), it provided
for the progressive phase-out of the federal estate tax, result-
ing in no state death tax credit by 2005 and no federal estate
tax due by 2010. The amendments to the federal estate tax
statutes-in particular, the eventual phase-out of the state
death tax credit entirely by 2005-created potential
problems for Oregon's inheritance tax scheme, given that
the state law was explicitly tied to the federal law. Left
unchanged, the Oregon inheritance tax would have phased
out with its federal counterpart. (In 2010, Congress again
amended the federal estate tax statutes resulting in the rein-
statement of the federal estate tax, but that change does not
affect the disposition of this case. See Tax Relief, Unemploy-
ment Insurance Reauthorization, and Job Creation Act of
2010, Pub L No 111-312, § 301, 124 Stat 3296, 3300 (codified
as amended in scattered provisions of 26 USC).)

In 2003, the Oregon legislature addressed the mat-
ter by amending the state inheritance tax statutes. The leg-
islature found that the 2001 amendments to the federal
estate tax laws produced an "unintended consequence" that
created "difficulties in the administration and enforcement of
the Oregon inheritance tax." ORS 118.009. To avoid the
de facto phase-out of the Oregon inheritance tax and to
"ensure that the level of tax compliance with the Oregon
inheritance tax" is maintained, ORS 118.009, the legislature,
in effect, de-coupled the state inheritance tax law from cur-
rent federal estate tax law and instead permanently linked it
with the federal estate tax law as it existed before the 2001
amendments. Under the terms of the new Oregon statute,
any references in the Oregon inheritance tax law to the fed-
eral estate tax statute mean "the federal Internal Revenue
Code as amended and in effect on December 31, 2000, except
where the Legislative Assembly has specifically provided
otherwise." ORS 118.007. The 2003 amendments apply to all
instances in which the decedent dies on or after January 1,
1998. Or Laws 2003, ch 806, § 3(1), compiled as a note after
ORS 118.007 (2003).

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The 2003 amendments left unchanged a number of
existing provisions in the state inheritance tax statute that
referred to federal tax law. Among them are ORS 118.010(2),
which continues to provide that the state inheritance tax
"shall equal the maximum amount of the state death tax
credit allowable against the federal estate tax under section
2011 of the Internal Revenue Code," as well as ORS
118.100(1), which still provides that any state inheritance
tax "shall be paid to the Department of Revenue on the date
the federal estate tax is payable." The proper interpretation
of those two provisions is the principal focus of the parties'
arguments in this case.

## B. Facts

The relevant facts are not in dispute. Decedent,
William R. Pierson, died on January 1, 2003. The primary
asset of his estate is the Pierson family farm, comprising over
237 acres of land just outside of Ashland, Oregon. Plaintiff, as
we have noted, is the personal representative of his estate. In
2004, plaintiff filed a federal estate tax return. In that return,
she reported the fair market value of the farm as $1,694,100.
She then requested an exemption from that value of approx-
imately $1,480,000 under the provision of the Internal
Revenue Code that we have described pertaining to the val-
uation of family farms, IRC § 2032A. That left a net taxable
estate (after various other adjustments) of approximately
$242,000. Under the version of the federal estate tax law in
effect at the time-which, as we have described, eventually
phased out the tax entirely-the first $1 million of a net tax-
able estate was exempt from federal estate taxation. IRC
§ 2010(c) (2006). Accordingly, plaintiff reported in the return
a federal estate tax of zero. Because she reported no federal
estate tax liability, she also reported a state death tax credit
of zero.

The Internal Revenue Service (IRS) audited the
estate's return. The IRS determined that plaintiff had mis-
calculated the amount of the exemption available under IRC
§ 2032A and that the correct amount of the exemption was
$840,000 (that amount is the same under both the pre-2001
code and the version of the code that the IRS applied). That
left a net taxable estate of approximately $854,100. But,

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because the applicable federal estate tax law in effect at that
time exempted the first $1 million in estate value from taxa-
tion, IRC § 2010(c) (2006), the net result was as plaintiff
reported, namely, zero federal estate tax and zero state death
tax credit.

Plaintiff filed a copy of her federal tax return with
the department. The department determined that, based on
the federal estate tax law as it existed on December 31, 2000,
the estate would not have been subject to the phase-out con-
tained in the current version of the federal estate tax law.
Because of that, the department determined, the $854,100 in
net taxable estate would have been subject to taxation under
the federal tax law as of December 31, 2001, and would have
resulted, after various adjustments, in a state death tax
credit against that federal estate tax liability in the amount
of $26,767. Accordingly, the department issued a notice of
deficiency for $26,767, plus penalties and interest.

## C. The Tax Court Proceeding

Plaintiff then initiated this action against the
department contesting the assessment. Plaintiff moved for
summary judgment, contending that, because the IRS had
determined that the state death tax credit was zero, no state
inheritance tax was due. Plaintiff argued that the IRS audit
constituted a binding federal determination of the estate's
federal tax liability, which the department lacks authority to
alter. That is so, plaintiff asserted, because ORS 118.010(2)
defines the amount of Oregon inheritance tax due as the
"maximum amount of the state death tax credit allowable"
under federal law, and, in this case, the IRS determined that
the state death tax credit allowable under federal law was
zero. It is also so, she argued, because ORS 118.100(1) pro-
vides that no state inheritance tax is due until a federal
estate tax is "payable," and, in this case, the IRS determined
that none is payable. In each case, plaintiff reasoned, the key
determinant-the amount of state death tax credit "allowa-
ble" and the date that any federal estate tax is "payable"-
are matters of federal law, which, under the Supremacy
Clause of the federal constitution, already have been conclu-
sively established by the IRS.

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In a cross-motion for summary judgment, the
department responded that plaintiff's arguments were based
on a false premise, namely, that the IRS determination of the
estate's tax liability under the post-2001 federal tax law had
any bearing on the estate's state inheritance tax liability,
which, under ORS 118.007, is determined under pre-2001
federal estate tax law. The department argued that plaintiff's
reliance on ORS 118.010(2) and ORS 118.100(1) in support of
her argument to the contrary is misplaced. The department
observed that the former statute merely provides that the
amount of state inheritance tax liability is the amount of the
state death tax credit "allowable" under federal law-that is,
the amount allowable under the pre-2001 federal tax law-
not the amount actually allowed under later versions of fed-
eral law. Similarly, the department argued that the latter
statute merely provided that the state inheritance tax is due
when a federal estate tax is "payable," that is, under the pre-
2001 federal law. Any other reading of the statutes, the
department argued, would directly conflict with the express
provisions of ORS 118.007. The Tax Court agreed with the
department and granted its motion for summary judgment.
This direct appeal followed.

# II. ANALYSIS

On appeal, plaintiff contends that the Tax Court
erred in granting the department's motion for summary judg-
ment. In support of that contention, plaintiff essentially
reprises the arguments that she advanced to the Tax Court,
viz., that, under both ORS 118.010(2) and ORS 118.100(1),
the IRS audit that established a state death tax credit of zero
and that no federal estate tax was due under current federal
tax law is controlling. In response, the department likewise
reprises the arguments that it offered in support of its sum-
mary judgment motion.

Thus framed, the parties' contentions reduce to a
question of the proper interpretation of state statutes, specif-
ically, ORS 118.010(2) and ORS 118.100(1). That is a ques-
tion of law, governed by the principles set out in PGE v.
Bureau of Labor and Industries, 317 Or 606, 610-12, 859 P2d
1143 (1993), and State v. Gaines, 346 Or 160, 171-73, 206 P3d
1042 (2009). Our goal is to determine the intended meaning

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of those statutes by examining their text in context along
with relevant legislative history and, if necessary, other aids
to construction. Gaines, 346 Or at 171-73. In that regard-
and, contrary to plaintiff's contention in this case-we note
that our focus is on the meaning of those Oregon inheritance
tax statutes, which presents a question of state, not federal,
law. The two statutes may refer to taxes "allowable" or "pay-
able" under the federal "Internal Revenue Code," but the
question is what the Oregon legislature intended when it
used those terms in the state inheritance tax statutes. See
Morris v. Dept. of Rev., 320 Or 579, 584 n 5, 889 P2d 1294,
cert den, 516 US 816 (1995) ("Federal tax law does not control
the tax law of Oregon.").

With the foregoing in mind, we turn to the wording
of each of the relevant statutes. We begin with ORS
118.010(2), which provides that the state inheritance tax
equals "the maximum amount of the state death tax credit
allowable against the federal estate tax under section 2011 of
the Internal Revenue Code." The key phrasing is the refer-
ence to the state death tax credit that is "allowable
under section 2011 of the Internal Revenue Code." That
phrasing is significant in two respects.

First, the statute is expressed in terms of the state
death tax credit that is "allowable," not any credit that was
actually allowed. In ordinary usage, the term "allowable"
refers to something that is "PERMISSIBLE : not forbidden : not
unlawful or improper." Webster's Third New Int'l Dictionary
58 (unabridged ed 1993). It connotes something that exists in
the abstract or has yet to occur, as opposed to something that
already has been allowed. As it turns out, that is consistent
with the manner in which the federal estate tax law operates.

As we have noted, under the law in effect on
December 31, 2000, section 2011 of the Internal Revenue
Code authorizes an estate to take a state death tax credit.
The amount of that credit is expressed both in terms of a
maximum allowable, based on the value of the taxable estate,
and, where appropriate, in terms of a lesser amount actually
allowed. Thus, for example, in cases in which the maximum
state death tax credit allowable would result in a refund to
the estate, the amount that is actually allowed to be taken is

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a lesser amount. IRC § 2011(f) (2000). In that context, the
wording of ORS 118.010(2) becomes significant, because the
statute refers to state inheritance tax liability in terms of
"the maximum amount of the state death tax credit allowa-
ble," which under the federal tax law is different from the
amount that is actually allowed. Thus, plaintiff's contention
that the statutory reference to the state death tax credit
"allowable" refers to what the estate was actually allowed
fails to account for that distinction.

Second, ORS 118.010(2) is phrased in terms of the
state death tax credit that is allowable "under section 2011 of
the Internal Revenue Code." Taken in isolation, it perhaps
would be permissible-as plaintiff contends in this case-to
read the phrase to refer to the currently applicable version of
the federal law. But, in construing Oregon statutes, we do not
read individual phrases in isolation; rather, we examine
them in context. See, e.g., Stevens v. Czerniak, 336 Or 392,
401, 84 P3d 140 (2004) ("[T]ext should not be read in isolation
but must be considered in context."). That "context" includes,
among other things, other parts of the statute at issue. Lane
County v. LCDC, 325 Or 569, 578, 942 P2d 278 (1997) ("[W]e
do not look at one subsection of a statute in a vacuum; rather,
we construe each part together with the other parts in an
attempt to produce a harmonious whole.").

In this case, the context of ORS 118.010(2) speaks
directly to the issue and is contrary to the interpretation that
plaintiff advances. As we have noted, in response to the con-
gressional phase-out of the federal estate tax, the Oregon leg-
islature amended the state inheritance tax statutes so that,
in all cases in which a decedent dies on or after January 1,
1998, any reference to the federal tax law "means the federal
Internal Revenue Code as amended and in effect on
December 31, 2000." ORS 118.007. The state death tax credit
that the IRS calculated in this case was based on the then-
current version of the Internal Revenue Code, not the version
of the federal law in effect on December 31, 2000. The IRS
determination of the state death tax credit is, therefore, irrel-
evant to the calculation of the estate's state inheritance tax
liability under ORS 118.010(2).

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We turn to ORS 118.100(1), on which plaintiff also
relies. The statute provides that "[t]he tax provided for in
ORS 118.010 shall be paid to the Department of Revenue on
the date the federal estate tax is payable." ORS 118.100(1).
Plaintiff contends that, even if the estate is obligated to pay
state inheritance tax under ORS 118.010(2), under ORS
118.100(1), that tax is not due until any federal estate tax is
payable. In this case, plaintiff contends, no federal estate tax
is yet payable, as confirmed by the IRS audit.

Plaintiff is correct that, under ORS 118.100(1), any
state inheritance tax must be paid when a federal estate tax
is "payable." But the federal estate tax becomes "payable"
only by reference to some version of the Internal Revenue
Code. Her argument that no federal estate tax is payable in
this case relies on the assumption that the relevant version of
the Internal Revenue Code is the then-current version that
the IRS applied in its audit. Under ORS 118.007, however,
whenever the state inheritance tax statutes refer to the
Internal Revenue Code, the reference is to the version of the
code in effect on December 31, 2000. The IRS audit, based on
a later version of the Internal Revenue Code, is irrelevant.

That reading of ORS 118.100(1) is confirmed by a
closer examination of the phrasing of the statute. That phras-
ing makes clear that what must be paid is "the tax provided
for in ORS 118.010," which, as we have just noted, is the tax
that is "equal [to] the maximum amount of the state death
tax credit" as determined by reference to federal estate tax
law in effect on December 31, 2000. That state inheritance
tax, in turn, must be paid when "the federal estate tax is pay-
able." By the use of the definite article, the statute suggests
that "the federal estate tax" that is payable is the one that
was the basis for the determination of the state death tax
credit that has just been mentioned, that is, the federal tax
law in effect on December 31, 2000. That understanding is
consistent with the legislature's use of the phrase "the federal
estate tax" in both ORS 118.100(1) and ORS 118.010(2).
Tharp v. PSRB, 338 Or 413, 422, 110 P3d 103 (2005) (“When
the legislature uses the identical phrase in related statutory
provisions that were enacted as the part of the same law, we
interpret the phrase to have the same meaning in both
sections.").

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Plaintiff's contrary reading of ORS 118.100(1) would
create the anomaly that an estate could incur a state inheri-
tance tax obligation under ORS 118.010(2), but the depart-
ment could not require plaintiff to pay it. Plaintiff concedes
that her construction of ORS 118.100(1) "may deprive the
State of some inheritance tax revenue which the legislature
hoped to capture by statutory amendments" in 2003. Statu-
tory provisions, however, must be construed, if possible, in a
manner that "will give effect to all" of them. Powers v.
Quigley, 345 Or 432, 438, 198 P3d 919 (2008) (quoting ORS
174.010). By interpreting the phrase "the federal estate tax"
in ORS 118.100(1) consistently with that same phrase in
ORS 118.010(2), we avoid that anomaly and allow for the
enforcement of an estate's inheritance tax obligation as the
legislature intended.

At oral argument, plaintiff insisted that, even under
the version of the federal estate tax law that existed on
December 31, 2000, no federal estate tax is due. According to
plaintiff, that is because of a "mandatory extension of its due
date" under IRC § 2032A(c)(4), pertaining to the family farm
exemption from federal estate taxation.

To begin with, that argument is contrary to the posi-
tion plaintiff took in the Tax Court, where she expressly con-
ceded, for the purposes of the pending summary judgment
motions, the correctness of department's assessment of the
estate's tax liability under pre-2001 federal law, including
section 2032A. Moreover, plaintiff is mistaken as to the effect
of the exemption. As we have explained, under section
2032A, the taxable value of an estate may be reduced by the
farm exemption. But any remaining value remains subject to
federal estate taxation. Thus in this case, as the department
concluded, subtracting the section 2032A exemption from the
fair market value of the farm left a net taxable estate in
excess of $854,100. Under the version of the federal tax law in
effect on December 31, 2000, the estate owed federal estate
tax on that value. The only "mandatory extension" applied to
taxation on the portion of the value of the property that was
exempt under section 2032A.

We therefore conclude that the Tax Court correctly
determined that, under ORS 118.010(2) and ORS 118.100(1),

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the estate owed $26,767 in Oregon inheritance tax, plus pen-
alties and interest, and that the department was entitled to
summary judgment in its favor.

The judgment of the Tax Court is affirmed.