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Holt v. Lynch

Filed: June 1, 1982.

MARY R. (MATTHEWS) HOLT, EDGECOMBE BANKING AND TRUST COMPANY, CO -- EXECUTORS OF THE ESTATE OF D. G. MATTHEWS, JR.
v.
MARK G. LYNCH, SECRETARY OF REVENUE OF THE STATE OF NORTH CAROLINA



Appeal by plaintiffs from Reid, Judge. Judgment entered 26 June 1981 in Superior Court, Martin County. Heard in the Court of Appeals 6 May 1982.

Hedrick, Judge. Judge Hill concurs. Judge Becton concurs in part and dissents in part.

Hedrick

We note at the outset that plaintiffs are claiming as deductions, in calculating the State inheritance tax, the following interest expenditures: (1) interest paid on the estate's federal estate tax liability; (2) interest paid on the State inheritance tax liability; and (3) interest paid on money borrowed to pay the federal estate and State inheritance taxes; plaintiffs seek to deduct these expenditures as "costs of administration" of the estate. At oral argument, both parties agreed that, for the purposes of their deductibility in calculating State inheritance tax liability, there is no distinction in the treatment of the three kinds of interest expenditures at issue. We agree with the "all or nothing at all" theory of the parties, i.e. if any one of the kinds of interest at issue is deductible as a "cost of administration," then they all are, but if any one is not, none is.

With respect to the interest paid on the estate and inheritance taxes, the following statutes, each appearing within the same Subchapter, are relevant:

In determining the clear market value of property taxed under this Article, or schedule [which is entitled "Inheritance Tax"], the following deductions, and no others shall be allowed:

(5) Estate and inheritance taxes paid to other states, and death duties paid to foreign countries.

(8) Costs of administration, including reasonable attorney's fees.

G.S. § 105-9;

"Tax" . . . for the purposes of this Subchapter . . . include[s] penalties and interest, as well as the principal amount of such tax . . .

G.S. § 105-241.1(il).

Under plaintiffs' argument, interest on late federal estate and North Carolina inheritance taxes would be deductible as costs of administration; by an extension of reasoning, interest on late estate and inheritance taxes paid to other states would also be deductible under the "costs of administration" provision, since such interest expenses paid to other states are qualitatively similar to interest paid on federal estate and North Carolina inheritance taxes. Hence, plaintiffs' rationale leads to the conclusion that if the deductibility of "costs of administration" were revoked by the legislature, interest on liability for other state's inheritance and estate taxes would be nondeductible. Upon such a revocation, however, such interest would still be deductible, since the deductibility of the estate's liability for other state's estate and inheritance taxes also includes, by virtue of G.S. § 105-241.1(il), the interest thereon. The deductibility of interest on estate and inheritance taxes, therefore, must arise out of the combined effect of G.S. § 105.-9(5) and G.S. § 105-241.1(il). Furthermore, the principle that "words of a statute are not to be deemed merely redundant if they can reasonably be construed to add something to the statute which is in harmony with its purpose," see Schofield v. Great Atlantic & Pacific Tea Co., 299 N.C. 582, 590, 264 S.E.2d 56, 62 (1980), would be violated if G.S. § 105-9(5) and G.S. § 105-241.1(il) provided for a deduction which already existed under G.S. § 105-9(8). Hence, the required non-redundant construction ...


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