Appeal by the state from an order fixing the amount of inheritance tax payable on certain legacies and devises.
By the will of Henry Timken, five thousand dollars was given to Cord Ringen, a nephew of the decedent, and the residue of the estate to the testator's five children in equal shares.
After determining that the net value of the interest passing to each child was $63,736.40, the court deducted from such *52amount the exemption of four thousand dollars, and computed the tax on the balance of $59,736.40 as follows:
Tax on $25,000.00 at 1 %................$250.00
Tax on $25,000.00 at 1½%................ 375.00
Tax on $ 9,736.40 at 2 %................ 194.72
Tax on $59,736.40 share of each child......$819.72
The contention of the appellant is that the exemption of four thousand dollars should have been deducted from the first twenty-five thousand dollars, instead of from the distributive share as a whole. The result of this would have been to tax twenty-one thousand dollars at the rate of one per cent, twenty-five thousand dollars at the rate of one and one-half per cent, arid $13,736.40 at the rate of two per cent, thereby adding forty dollars to the tax upon the share of each child, or two hundred dollars in all. Such was the method of computation employed in Estate of Bull, 153 Cal. 715, [96 Pac. 366]. The precise point here involved was not, however, raised in that case. While the decision cannot, therefore, be regarded as authoritative for the present purpose, we are satisfied that it illustrates the proper interpretation of the statute.
Section 1 of the act imposing the tax (Stats. 1905, p. 341), after declaring that all property passing by will, etc., shall be subject to a tax, provides that “the tax so imposed shall be upon the market value of such property at the rates hereinafter prescribed and only upon the excess over the exemptions hereinafter granted.” Section 2 fixes certain rates, varying according to the degree of kinship between the decedent and the successor, "when the property . . . exceeds in value the exemption hereinafter specified and shall not exceed in value twenty-five thousand dollars.” Section 3 declares that the “rates in section 2 are for convenience termed the primary rates,” and fixes an increasing scale of rates, consisting of multiples of the primary rates, for property in excess of twenty-five thousand dollars. Section 4 allows exemptions of different amounts to various classes of persons and corporations.
The position of the appellant that the exemption should be deducted from the amount to which the primary rates are applied is based upon the language of section 2. Under that section those rates are to be effective when the property exceeds in value the exemption but does not exceed twenty-*53five thousand dollars. It is clear that, for the purpose of determining whether the property is within this class, the entire value, including the exemption, is to be considered. If, for example, the gift be to a widow, whose exemption is ten thousand dollars, a gift of thirty-five thousand dollars could not be treated as subject to the primary rate, on the theory that ten thousand dollars thereof was exempt, and but twenty-five thousand dollars remained subject to taxation. The language of the section excludes such idea. The primary rate is made to apply where the gift exceeds the exemption but does not exceed twenty-five thousand dollars. The entire amount, whether exempt or not, is considered for the purpose of fixing the rate of taxation. It follows necessarily that where the property, including the exemption, exceeds twenty-five thousand dollars, the excess is taxable at the increased rates declared by section 3. Sections 2, 3, and 4 are to be read together, and where the gift exceeds twenty-five thousand dollars, the amount thereof which comes within the limits of section 2 is to be taxed at the primary rate. (Estate of Bull, 153 Cal. 715, [96 Pac. 366].) The only way in which this can be accomplished is by deducting the exemption from the first tvrenty-five thousand dollars, rather than from the entire gift. The latter method, which is the one followed by the trial court, results in applying the primary rate to so much of the gift as equals twenty-five thousand dollars, over and above the amount of the exemption. But, as we have seen, such rate is to be applied only to the first twenty-five thousand dollars, inclusive of exemptions.
The computation of the tax payable by the several children should, accordingly, have been fixed as follows:—
Tax on first $25,000.00 (less exemption) 1%.....$210.00
“ “ $25,000.00 to $50,000.00 1½%... 375.00
“ “ $50,000.00 to $63,736.40 2%..... 274.73
$859.73
It is urged by the respondents that this construction is inconsistent with the provision of section 1 that the tax is imposed only upon the excess over the exemptions. There is no such inconsistency. The exemptions are allowed under either method of figuring. The only difference is that, under the one, the exemption is allowed on that part of the prop*54erty which pays the lowest (primary) rate, while, under the other, it is deducted from the part paying the highest rate. In any view, the exemption is a matter of grace on the part of the legislature, and cannot be claimed beyond the extent to which the law-making body has seen fit to allow it.
It will be observed, further, that the rule herein declared has the advantage of making the exemption uniform in amount, regardless of the extent of the property passing. If there were no exemption at all, the additional tax payable by the beneficiary would, in every case, be measured by the primary rate on the sum which is, under the act as it now reads, -declared exempt. The person receiving the property is relieved of the payment of taxes to this amount. Under the method contended for by the respondents, the recipient of an amount exceeding twenty-five thousand dollars would obtain a deduction equivalent to a tax at a higher rate upon the amount exempt. There is, therefore, no foundation for the contention that the interpretation contended for by the appellant works any improper discrimination against persons succeeding to larger amounts.
The order is reversed with directions to the trial court to enter an order in conformity with the views herein expressed.
Shaw, J., and Angellotti, J., concurred.
Hearing in Bank denied.