Chase Manhattan Bank v. Commissioner of Revenue Services
| Decision Date | 05 December 1997 |
| Docket Number | No. CV960560970,CV960560970 |
| Citation | 45 Conn.Supp. 368,716 A.2d 950 |
| Court | Connecticut Superior Court |
| Parties | CHASE MANHATTAN BANK 1 , Trustee, et al. v. COMMISSIONER OF REVENUE SERVICES. Tax Session |
Howard, Kohn, Sprague and Fitzgerald, South Windsor, for plaintiffs.
Richard K. Greenberg, Assistant Attorney General, with whom was Richard Blumenthal, Attorney General, for defendant.
This case presents a number of challenges to the constitutionality of the state of Connecticut's income tax as to five specific trusts. The plaintiffs are the trustees 2 of five separate trusts which, in 1993, paid Connecticut income tax as "resident trusts" pursuant to General Statutes § 12-701(a)(4). The plaintiffs filed timely requests for refunds. These requests were denied by the defendant commissioner of revenue services (commissioner). The plaintiffs are aggrieved by such decision and this appeal is authorized under General Statutes § 12-730. 3 For the reasons to be subsequently set forth, the court finds the issues in favor of the defendant.
The parties have stipulated to the facts and submitted uncontroverted affidavits in support of their cross motions for summary judgment.
The trusts present somewhat different factual scenarios, but all of the plaintiffs rely on the same fundamental claims. The plaintiffs assert that the trusts, trustees, assets and beneficiaries have such limited contact with Connecticut that requiring the trusts to pay the Connecticut income tax denies them due process of law. 4 The plaintiffs also assert a commerce clause claim under art. I, § 8, cl. 3, of the United States constitution. The commerce clause claim asserts that the Connecticut income tax on resident trusts seriously, unreasonably and unduly burdens interstate commerce.
In order to determine the constitutionality of Connecticut's taxing the income of the resident, trusts, the facts must be reviewed as to each trust.
This testamentary trust was established in Connecticut by the will of Sidney L. Parry (Parry), upon his death in 1968. Parry, at the time of his death, was a resident and domiciliary of Connecticut. Parry's widow would take a share of the trust as life tenant; upon her death her daughter will become the life beneficiary and her grandchildren the remaindermen.
A predecessor of Chase Manhattan Bank and two individuals were appointed trustees of the trust. None of the beneficiaries of the trust is, or has been since its inception, a resident or domiciliary of Connecticut.
None of the trust assets is located in Connecticut, nor has any been since 1980. Also, since at least 1980, no aspect of the trust administration was located in Connecticut. No income of the trust was in any way connected with or derived from sources within Connecticut in 1993. For the 1993 tax year, the Parry trust did not pay income tax to any state other than Connecticut.
Parry's will was probated in the Probate Court for the district of Westport, in 1968. The will excused the trustees from rendering The Parry trust has the least contact with Connecticut of any of the five plaintiff trusts. The Connecticut connections consist of the domicile and residence of the settlor, the probating of his will in the Connecticut Probate Court, jurisdiction of the Probate Court over accounts of trustees as fiduciaries pursuant to § 45a-175 and the requirement for a final accounting by the trustees pursuant to §§ 45a-175 and 45a-177.
periodic accounts, and none has been filed by the trustees. See General Statutes § 45a-177. The trustees must file a final accounting with the Probate Court, as a final accounting cannot be waived under Connecticut law. General Statutes § 45a-175.
The Dallett Trust is a testamentary trust established under the will of John Dallett (Dallett), who was a resident and domiciliary of Connecticut at the time of his death in 1975. The will was probated in the Probate Court for the district of Westport.
The will placed a portion of the estate in a trust which paid its income to Dallett's son for his life. Upon the death of the son, the income would go to the grandchildren until the youngest reached the age of twenty-three. The only grandchild is currently over the age of twenty-three.
Similar to the Parry trust, no assets or income of the Dallett trust are connected to Connecticut, the trustees and beneficiaries are not residents or domiciliaries of Connecticut, and no aspect of the trust administration was located in Connecticut. The Dallett trust did not pay income tax to any state other than Connecticut in 1993.
The Dallett trustees have filed six periodic accounting with the Probate Court. Thus, the jurisdiction of the Probate Court has, in fact, been continuous.
This is a testamentary trust established under the will of Elvira R. Evens, who died in 1974, a resident and domiciliary of Connecticut. Her will was probated in the Probate Court for the district of New Canaan.
The will established a trust to pay income to her daughter, Grace Evans Stewart (Stewart), for life. In 1995, Stewart died and the trust assets were distributed to the grandchildren, who had been named remaindermen. Stewart was a resident and domiciliary of Connecticut. One of the two remaindermen was a Connecticut resident.
As is the case with all the testamentary trusts at issue here, the trustees were neither Connecticut residents nor domiciliaries, no assets were located in Connecticut, no income was derived from sources in Connecticut, no trust administration occurred in Connecticut, and in 1993, no income taxes were paid to any state other than Connecticut.
The will exempted the trustees from filing periodic accounts and none were filed. A final accounting, however, was filed in 1995 as required by General Statutes §§ 45a-175, 45a-177 and 45a-179. The Probate Court reviewed the final accounting and issued its allowance of the final account on January 3, 1996.
This is the fourth of the testamentary trusts. It was created under the will of James N. Worcester (Worcester), who died in 1936, a Connecticut resident domiciliary. The will was probated in the Probate Court for the district of New Canaan. The residuary estate was left in this trust which paid the income to Worcester's widow until her death in 1983. Subsequently, the income was paid to her only son, a resident and domiciliary of Connecticut. Upon his death, the trust will terminate at which time the trust assets will be distributed as the son may appoint or, in default of such appointment, to the son's living issue. Only one of the son's living children is a Connecticut resident and domiciliary.
The trustee is not a Connecticut resident or domiciliary. None of the trust assets or income are connected to Connecticut, though The trustees have filed forty interim accounts, which have been reviewed and approved by the Probate Court.
from October 1, 1973, to April 30, 1980, the trust held shares and a proprietary lease for a cooperative apartment in Greenwich. The trust is administered in New York. As with the other testamentary trusts, the Worcester trust did not pay income tax to any state other than Connecticut in 1993.
This is an inter vivos trust established in 1955 by Charles Anderson Dana, a Connecticut resident and domiciliary who died in 1979.
The trust provides that its income will be paid to his daughter once she attains the age of twenty-eight until her death or her attainment of the age of forty-eight. The daughter presently is forty-two years of age and has children. The beneficiary and contingent beneficiaries are Connecticut residents.
The trustee is not a Connecticut resident or domiciliary. The trust assets and income are not located in or connected to Connecticut. The trust is administered in New York.
All of these trusts share certain characteristics. All were created in Connecticut by Connecticut residents. All of the trusts have been probated in Connecticut. All of the trusts are subject to final accounting requirements of Connecticut law. None of the trusts has Connecticut trustees, trust administration, trust assets in Connecticut or trust income connected with or derived from sources in Connecticut.
The Parry trust has no additional contacts with Connecticut.
The Dallett trust has the additional contacts of interim periodic accounts which were reviewed and allowed by the Probate Court.
The Stewart trust has the additional contacts of beneficiaries being residents of Connecticut.
The Worcester trust has additional contacts because both beneficiaries are present in Connecticut and the periodic accounts have been filed.
The Adolfsson trust is the only inter vivos trust. The trust settlor and beneficiary were Connecticut residents.
Connecticut's income tax imposes a tax upon the undistributed income and realized gains of resident trusts. A resident trust is any testamentary trust created by a decedent who was domiciled in Connecticut at the time of death and any inter vivos trust created by a settlor who was domiciled in Connecticut at the time the trust was funded and became irrevocable. General Statutes § 12-701(a)(4). 5 The plaintiff trusts were all resident trusts for the purposes of § 12-701(a)(4).
The present case raises issues of first impression in this jurisdiction; though the court is informed by decisions on point in other jurisdictions. See District of Columbia v. Chase Manhattan Bank, 689 A.2d 539 (D.C.App.1997); Augusta v. Kimball, 91 Me. 605, 40 A. 666 (1898); Pennoyer v. Taxation Division Director, 5 N.J.Tax 386 (1983); Taylor v. State Tax Commission, 85 App.Div.2d 821, 445 N.Y.S.2d 648 (1981); First National Bank of Boston v. Harvey, 111 Vt. 281, 16 A.2d 184 (1940); Bayfield County v. Pishon, 162 Wis. 466, 156 N.W. 463 (1916) for cases involving taxation of testamentary trusts. See McCulloch v. Franchise Tax...
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...be taxable in Connecticut when any of the beneficiaries are Connecticut residents. Chase Manhattan Bank v. Comm'r of Revenue Services, 45 Conn. Supp. 368, 716 A.2d 950 (1997). The father, who was himself a beneficiary of a family trust initially established in 1960, and several of his child......