North Carolina Dept. of Rev. v. Kimberly Rice Kaestner 1995 Family Trust, 139 S. Ct. 2213 (2019).
The Supreme Court of the United States decided by a 9-0 margin (6
joining the majority opinion and 3 concurring), that North Carolina
cannot tax nonresident trust payments. Here is an excerpt from the
opinion:
This case is about the limits of a State’s power to tax a trust. North
Carolina imposes a tax on any trust income that “is for the benefit of ”
a North Carolina resident. N. C. Gen. Stat. Ann. §105–160.2 (2017). The
North Carolina courts interpret this law to mean that a trust owes
income tax to North Carolina whenever the trust’s beneficiaries live in
the State, even if—as is the case here—those beneficiaries received no
income from the trust in the relevant tax year, had no right to demand
income from the trust in that year, and could not count on ever
receiving income from the trust. The North Carolina courts held the tax
to be unconstitutional when assessed in such a case because the State
lacks the minimum connection with the object of its tax that the
Constitution requires. We agree and affirm. As applied in these
circumstances, the State’s tax violates the Due Process Clause of the
Fourteenth Amendment.
For an excellent discussion of the ramifications of this case under the laws of other states, see Mark A. Luscombe, A Deep Dive Into Kaestner, Accounting Today (Aug. 1, 2019).
Moral: Because Texas does not impose an income tax, this very important case is of lesser importance here. Nonetheless, Texas practitioners may have beneficiaries of Texas trusts who reside (or who might reside) outside of Texas. These trusts could have more contacts with the other states than the Kaestner trust and be potentially subject to taxation.
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