Tax Type
Estate Tax
Description
Sale of real property in Maryland; Amended return
Topic
Payment and Refund
Subtractions and Exclusions
Date Issued
09-10-1992
September 10, 1992
Re: §58.1-1821 Application; Estate Tax
Dear*********************
This will reply to your letters dated April 8, 1992 and June 11, 1992, in which you seek a refund of estate tax paid by the*********************(the "Taxpayer").
FACTS
The decedent, a Virginia domiciliary, held interests in real estate located in the state of Maryland. At the time of her death, one parcel of Maryland real estate was under a contract of sale. The personal representative of the estate filed a Virginia estate tax return reporting an allocation of of the federal gross estate to Maryland; this included the real estate under the contract of sale.
On April 26, 1991, the personal representative filed an amended Virginia estate tax return showing an allocation of of the gross estate to Maryland. The amended return, which resulted in additional tax due to Virginia, was based on the reclassification of the real estate under a contract of sale as personalty, includable in the Virginia gross estate.
On August 19, 1991, a second amended Virginia estate tax return was filed, restoring the original allocation of of the gross estate to Maryland and claiming a refund for the additional taxes paid with the first amended return. The second amended return was based on a Maryland ruling which classified the property under contract of sale as real estate, allocable to Maryland. The department denied the refund claim on the basis that the doctrine of equitable conversion treats the contract of sale as an intangible asset, taxable by the state of the decedent's domicile (Virginia).
You appeal the denial of the refund on the grounds that the department's classification of the contract of sale as an intangible asset is contrary to the law of the situs of the property (Maryland) and results in double taxation.
DETERMINATION
Va. Code §58.1-902 provides that a tax in the amount of the federal credit is imposed on the transfer of the taxable estate of every resident of Virginia, subject, where applicable, to a credit for estate taxes paid to another state. The property of a resident includes, among other things, intangible property owned by the resident regardless of where it is located. The question in this case is whether the contract of sale of real estate located in Maryland is an intangible asset includable in the Virginia gross estate and subject to taxation in Virginia.
You have furnished copies of two opinions of the Attorney General of Maryland (dated March 22, 1957 and March 27, 1968) which held that Maryland does not recognize the conversion of real property to personal property at the time of the contract of sale; the conversion to personal property takes place at the time of settlement. Consequently, the property in question, located in Maryland and under a contract of sale at the time of the decedent's death, was treated as real property for Maryland inheritance tax purposes and taxed by Maryland.
In Virginia, under the doctrine of equitable conversion, a contract for the purchase of land vests in the purchaser an equitable interest in real estate. The land is equitably converted into money, and the money is equitably converted into land. Consequently, if land is under a contract of sale, the land is treated as money which, under Virginia law, would be taxed by the state of the decedent's domicile. However, the doctrine of equitable conversion is not to be blindly applied to any situation involving the sale of real estate. As an instrument of equity, it is to be applied only when, in light of all the circumstances, justice so demands.
In the present case, in light of all the circumstances and the unusual facts presented, I find that the doctrine of equitable conversion is not applicable, and the contract of sale should be treated in accordance with the law of the situs of the property (Maryland). Because Maryland law treats the contract of sale as Maryland real property until the time of settlement, and the contract of sale was not settled at the time of the decedent's death, the property should be treated as Maryland real property.
Therefore, the contract of sale should not be included in the decedent's Virginia gross estate, and Virginia estate tax is not due on the asset.
Accordingly, your second amended return claiming a refund accepted. A refund will be issued in due course.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6098F
Rulings of the Tax Commissioner