NOTE: The regulations are numbered to correspond with the section of the California Gift Tax Law which is being implemented, interpreted, or made specific. The authority cited for all regulations in Subchapter 2 is Section 16506, Revenue and Taxation Code.)

* Prepared by State Controller.

The gift tax is not a tax upon property, but is rather a tax upon the privilege of transferring property by gift. Generally speaking, it reaches every transfer of property made after 10 p.m. of June 21, 1939 (the effective date of the “Gift Tax Act of 1939”), by an individual, whether in trust or otherwise, whether it is direct or indirect, and whether the property is real or personal, tangible or intangible, to the extent that the transfer is made without an adequate and full consideration in money or money's worth. It does not extend to any transfer of property which this State for constitutional reasons is prohibited from taxing. Also, it ordinarily taxes only gifts of property, other than future interests therein, in excess of $4,000 annual exemption to each donee, and gifts of future interests in property regardless of value.

The tax is not limited in its imposition to transfers of property without a valuable consideration, which at common law are treated as gifts, but extends to sales and exchanges made with donative intent for less than an adequate and full consideration in money or money's worth.

The California gift tax was imposed by the “Gift Tax Act of 1939” (Chapter 652 of the Statutes of 1939, effective 10 p.m., June 21, 1939).

The law was amended in 1940 by Chapter 41 of the Statutes of the First Extra Session of 1940, effective March 6, 1940; and again in 1941 by Chapter 1035 of the Statutes of 1941, effective July 16, 1941.

Among other things, the 1940 amendment subjected to the law one-half of all community property transferred by way of gift to a husband; provided that any donative transfer of community property by spouses to a third person is a gift of one-half of such property by the husband and one-half by the wife; provided that if the separate property of one spouse is transferred by agreement into community property, one-half of such property represents a gift from the transferring spouse; excluded alien nonresidents of the United States from the scope of several of the specified exemptions; extended the annual $4,000 exemption to transfers made in trust; and deleted a provision requiring that the consent of the State Controller be obtained prior to the making of transfers of corporate stock.

The 1941 amendment, in part, provided that a wife has the same interest in community property acquired before July 29, 1927 (the effective date of Section 161a of the Civil Code), that she has in community property acquired since that date; limited the scope of the charitable exemption; extended the annual exemption to alien nonresidents of the United States; changed the method of computing the gift tax credit; provided that the payment of the gift tax by a donee, or any agreement by him to pay such tax, is not consideration for the transfer to him; changed the last date for filing returns from March 1 to April 15 of the year following the calendar year in which a gift is made; authorized the State Controller to provide by rule for the filing of returns in a case where a donor has died or for some other reason cannot personally file a return; provided for the valuation of a transfer both for gift and inheritance purposes, if the transfer is subject both to gift and inheritance taxes, where the donor dies before filing a return; provided that the penalty for failure to file a return attaches also where the return is required by regulations of the Controller; provided that where a gift return is filed after the last date for filing, a penalty for delinquent tax payment attaches as of June 15 next following; provided that the civil penalty of $1,000 attaches also where there is willful failure to make a return or pay tax in accordance with the Controller's regulations; and authorized valuation of insurance policies and annuity contracts at market value as of the date of gift.

In 1943 the Gift Tax Act of 1939 as amended was codified and became Part 9 of Division 2 of the Revenue and Taxation Code, comprising Sections 15101 to 16652, inclusive, (Chapter 658, Statutes of 1943). The effective date of the codification was postponed to July 1, 1945.

The law was amended in 1944 (Chapter 46, Fourth Extra Session, Statutes of 1944; effective June 20, 1944) to provide relief to members of the armed services of the United States serving outside the continental United States with respect to the time of filing returns and paying the tax.

The law was amended twice in 1945, twice in 1947, and three times in 1951.

Chapter 380 amended provisions for computation of tax on false or fraudulent returns or on failure to file a return or report transfers; also provided for payment of interest on certain tax refunds.

Chapter 697 reduced the rate of interest in computing future, contingent and limited estates from 5 to 4 percent.

Chapter 658 amended provisions respecting appropriation of Gift Tax Fund.

Chapter 735 required adoptions be of persons under age 21 to qualify as class A donees; included widower of a daughter as a class B donee; amended provisions relating to penalties and refunds; provided for distribution of copies of the law; repealed provisions regarding fraud or failure to report transfers; repealed definition of community property as including intangibles acquired by spouses while domiciled outside of California; and repealed provisions relating to certain contingent transfers.

Chapter 80 provided that the specific exemption be applied against net gift to a donee.

Chapter 453 provided limits as to lien which attaches to property of a donee.

Chapter 734 included within the charitable exemption property transferred to certain nonprofit hospitals and membership associations.

Chapter 695 included as class A donees persons adopted during minority by any lineal issue or certain others in same classification.

Chapter 895 reduced return filing penalty from 10 percent to 5 percent.

Chapter 1313 (effective to all gifts, whenever made) substituted filing return under declaration of penalty of perjury in lieu of filing under oath; and provided for reciprocal collection of gift taxes with other states.

Chapter 383 excluded certain gifts to minors from classification as future interest gifts.

Chapter 403 permitted the use of whole dollar amounts on returns; amended charitable exemption and provisions for time of determination of tax; added tax computation provisions regarding a false or fraudulent return or failure to file a return; provided for issuance of warrants for collection of tax; and amended provisions for tax delinquency notice to governmental officers and agencies respecting withholding.

Chapter 1581 added provision for gift tax consequences of creation of real property joint tenancy between husband and wife.

Chapter 1128 (effective June 24, 1959) increased rates of tax on class C and class D donees.

Chapter 1628 (effective September 18, 1959) amended definition of class B and class C donees to include certain adopted or acknowledged children thereof.

Chapter 636 added provisions with reference to taxing transfers of quasi-community property.

Chapter 2189 provided a tax rate increase as to class B donees; reduced specific exemption of a wife from $24,000 to $5,000; provided equal treatment of spouses where separate property of either is transferred into community property.

Chapter 499 deleted requirement that payment of gift tax be made under protest as a condition to filing an action for recovery.

Chapter 506 provided for redetermination of tax for later years when affected by a determination for a prior year.

Chapter 523 disallowed annual exemption for certain transfers of separate property into community property.

Chapter 1070 provided for gift tax on the exercise or release of general powers of appointment; repealed provisions treating certain conversions of separate property into community property as taxable gifts at death of a spouse; exempted transfers of community property between spouses; and provided that conversions of separate property to community property be considered as half the separate of each spouse.

Chapter 1409 exempted charitable use transfers in trust although California trustee is not organized solely for charitable purposes.

Chapter 963 combined transferee classes C and D into one class C and increased the rates for all classes; reduced the gift tax annual exemption from $4,000 to $3,000.

Chapter 263 revised class A transferee requirements regarding children adopted by stepparents.

Chapter 709 substantially revised the gift tax determination procedure and delinquency.

Chapter 1092 provided that certain transfers of a decedent not previously reported be deemed incomplete and taxed at death.

Chapter 1200 combined into a single provision the rules regarding classification of adopted children; updated mortality and actuarial tables to be calculated at 3 1/2 percent per annum for valuing future interests such as life estates and annuities; amended procedure regarding court action by a taxpayer.

Chapter 1282 changed title of “inheritance tax appraiser” to “inheritance tax referee” throughout the gift tax law to conform to inheritance tax law revisions of appraiser system.

Chapter 1741 established new procedures for filing returns and paying gift taxes on a quarterly basis.

Chapter 579 (effective March 7, 1972) reduced the age of adoption for exemption purposes from 21 to 18.

Chapter 990 (effective August 16, 1972) provided that a disclaimer of an interest in property shall not be considered a gift.

Chapter 637 amended exemption classification provisions for persons adopted when over 18 years of age.

Chapter 101 updated mortality tables to be used at a 6 percent rate in valuing future interests such as life estates, annuities and remainders.

Chapter 443 amended provisions relating to suits for modification or refund of gift taxes.

Chapter 661 increased the interest rate for late payment of the tax from 6 percent to 12 percent per annum.

Chapter 942 taxed donor's one-half interest in community property transferred to a spouse, provided a marital exclusion in an amount equal to one-half the value of donor's separate property transferred to a spouse and increased the specific exemption for gifts to a spouse from $5,000 to $60,000.

Chapter 579 provided gifts to certain political organizations are exempt from tax.

Chapter 635 changed the age of donee whereby a gift of a future interest may nevertheless qualify for the annual exclusion from 18 to 21.

Chapter 481 repealed and reenacted the gift tax law provisions to conform with new uniform state tax lien law.

Chapter 604 provided for payment of interest on refunds where overpayment of tax was made because of an error or mistake on the part of the taxpayer at a rate indexed to the federal reserve rate on each January 1, not to exceed 7 percent per annum.

Chapter 322 made certain technical amendments to the Uniform State Tax Lien Law, adopted by Stats. 1977, Chapter 481.

Chapter 600 consolidated the Uniform State Tax Lien Law, contained in various codes and several different parts of the Revenue and Taxation Code, including Part 9, into a single chapter of the Government Code; and deleted from the Gift Tax Law express language of the uniform law and, in place thereof, referred to the relevant chapter of the Government Code.

Chapter 634 provided transfers to a spouse are excluded from the tax except where the spouse receives a limited power of appointment in any part, or all, of the donor's property; and increased the specific exemption for all other classes of beneficiaries.