Chase Manhattan Bank v. Gavin, (SC 15875)

• Decision Date: 01 June 1999
• Docket Number: (SC 15875)
• Court: Connecticut Supreme Court
• Parties: CHASE MANHATTAN BANK, TRUSTEE, ET AL. v. GENE GAVIN, COMMISSIONER OF REVENUE SERVICES

249 Conn. 172

733 A.2d 782

CHASE MANHATTAN BANK, TRUSTEE, ET AL. v. GENE GAVIN, COMMISSIONER OF REVENUE SERVICES

(SC 15875)

Supreme Court of Connecticut.

Argued October 27, 1998.

Officially released June 1, 1999.

Callahan, C. J., and Borden, Berdon, Norcott, Palmer, McDonald and Peters, Js. Philip H. Schaeffer, with whom were Constance L. Epstein and, on the brief, Andrew S. Auchincloss and Edward F. Rover, for the appellants (plaintiffs).

Richard K. Greenberg, assistant attorney general, with whom were John G. Haines, assistant attorney general, and, on the brief, Richard Blumenthal, attorney general, for the appellee (defendant).

Opinion

BORDEN, J.

The issues in this appeal are whether Connecticut's tax on the undistributed taxable income of four testamentary trusts and one inter vivos trust: (1) violates the due process clause of the fourteenth amendment to the United States constitution;¹ and (2) unduly burdens interstate commerce in violation of the commerce clause of the United States constitution.² The named plaintiff, Chase Manhattan Bank, and the plaintiff cotrustees (plaintiff),³ appeal from the summary judgment of the trial court in favor of the defendant, Gene Gavin, the commissioner of revenue services.⁴ By that judgment, the trial court rejected the plaintiffs requests for refunds of the 1993 income taxes paid by the plaintiff as trustee of the trusts. The plaintiff claims that the relevant taxation scheme, as applied to it, violates the due process clause and commerce clause of the federal constitution. We affirm the judgment of the trial court.

After paying the 1993 income taxes imposed on the trusts in question, the plaintiff requested refunds from the defendant, who denied the requests. The plaintiff appealed from the denials to the trial court pursuant to General Statutes § 12-730.⁵ In the trial court, the parties stipulated to the facts, submitted uncontroverted affidavits, and filed cross motions for summary judgment. The court granted the defendant's motion for summary judgment, denied the plaintiffs motion, and rendered judgment for the defendant. This appeal followed.

The facts are undisputed. The plaintiff, a banking corporation incorporated under the laws of New York, is the trustee of the four testamentary trusts, namely, the Parry Trust, the Dallett Trust, the Stewart Trust and the Worcester Trust, and of the single inter vivos trust, namely, the Adolfsson Trust. All of the trusts are resident trusts as defined by General Statutes § 12-701 (a) (4).⁶ Each testamentary trust is "a trust ... consisting of property transferred by will of a decedent who at the time of his death was a resident of this state";⁷ General Statutes § 12-701 (a) (4) (C); and the inter vivos trust is "a trust ... consisting of the property of ... a person who was a resident of this state at the time the property was transferred to the trust if the trust was then irrevocable...." General Statutes § 12-701 (a) (4) (D) (i); see footnote 6 of this opinion. More specifically, the Parry Trust was established in 1968 under the will of Sidney L. Parry, a Connecticut domiciliary, and was probated in the Probate Court for the district of Westport. The Dallett Trust was established in 1975 under the will of John Dallett, a Connecticut domiciliary, and was probated in the Probate Court for the district of Westport. The Stewart Trust was established in 1974 under the will of Elvira R. Evens, a Connecticut domiciliary, and was probated in the Probate Court for the district of New Canaan. The Worcester Trust was established in 1936 under the will of James N. Worcester, a Connecticut domiciliary, and was probated in the Probate Court for the district of New Canaan. The Adolfsson Trust is an irrevocable inter vivos trust established in 1955 by Charles Anderson Dana, a Connecticut domiciliary.

It is undisputed that the plaintiff, acting as trustee, did not maintain any presence and was not a domiciliary or a resident of Connecticut, and that no asset of any trust was located in Connecticut in 1993. No aspect of trust administration was conducted in Connecticut in 1993, and except for this proceeding and the probate proceedings delineated later in this opinion, the plaintiff, as trustee, has not been the subject of any judicial or administrative proceeding in any Connecticut forum. The assets of all of the trusts for 1993 consisted solely of cash and securities held in accounts of the plaintiff as trustee in New York. None of the trusts earned any income derived from or connected with the ownership or disposition of any interest in real or tangible personal property, or from a business, trade, profession or occupation carried on by the trust in Connecticut or elsewhere. None of the four testamentary trusts paid any income taxes to any other state for 1993. The stipulation is silent on this point regarding the inter vivos trust.

None of the beneficiaries of the Parry Trust or the Dallett Trust was, or has been since its establishment, a resident or a domiciliary of Connecticut. The current income beneficiary of the Parry Trust is Elizabeth B. Parry. The trustee has the discretion to distribute principal to her, and up to 50 percent of the income to the testator's grandchildren. Upon the death of Elizabeth B. Parry, Elizabeth Parry Miller will become the beneficiary and, upon her death, the trust will terminate and the trust assets will be distributed to the testator's then living issue. The current income beneficiary of the Dallett Trust is John Dallett, Jr. The trustee has discretion to distribute the principal to him. Upon his death, the trust will terminate and the trust assets will be distributed to Cassandra Dallett. With respect to the Stewart Trust, since its establishment in 1974, Grace Evens Stewart, a Connecticut domiciliary, was the income and discretionary principal beneficiary until her death in 1995, when the trust was terminated and the trust property was distributed to her two children, one of whom was a Connecticut resident. With respect to the Worcester Trust, the current income beneficiary is, and was during 1993, James N. Worcester, Jr., a Connecticut domiciliary, and upon his death the trust property will be distributed either by virtue of his exercise of a general testamentary power of appointment or, in default of such an appointment, to his four children, one of whom is currently a Connecticut domiciliary. With respect to the Adolfsson Trust, the sole current income beneficiary is, and was in 1993, Sandra Leigh Dana, a Connecticut domiciliary.⁸ In 1993, she was thirty-nine years old. The trust will terminate upon her death or when she reaches the age of forty-eight, when the trust property will be distributed to her outright if she is then living or, if not, pursuant either to her testamentary power of appointment or to her then living descendants, who are currently her children living with her in Connecticut.

Under the terms of the Parry Trust, the plaintiff is excused from rendering periodic accounts to the Probate Court pursuant to General Statutes § 45a-177⁹ and, accordingly, the plaintiff has not rendered any such periodic accounts. Thus, the plaintiff has been involved in probate proceedings only with respect to the probating of the testator's will. Under the terms of the Stewart Trust, the plaintiff is excused from rendering periodic accounts to the Probate Court pursuant to § 45a-177; see footnote 9 of this opinion; and, accordingly, the plaintiff has not filed any such periodic accounts. At the termination of the trust in 1995, however, the plaintiff filed a first and final account for the period 1975 through 1995, which the Probate Court approved in February, 1996. With respect to the Dallett Trust, the plaintiff has filed six periodic accounts in the Probate Court for the periods 1976-79, 1979-82, 1982-85, 1985-88, 1988-91 and 1991-93, all of which the Probate Court approved. With respect to the Worcester Trust, the plaintiff has filed forty-one periodic accounts in the Probate Court, from 1937 through 1995, all of which the Probate Court approved. With respect to the Adolfsson Trust, the plaintiff has appeared in a Connecticut court only in connection with this tax appeal.

Before considering the merits of the plaintiffs claims, it is useful to discuss the application of the relevant tax statutes to the resident testamentary trusts and the inter vivos trust in this case. For the 1993 tax year, General Statutes § 12-700 (a)¹⁰ imposed a tax on "the Connecticut taxable income" of all residents of the state, including trusts and estates. Under General Statutes § 12-701 (a) (9),¹¹ the "`Connecticut taxable income of a resident trust or estate' shall mean the taxable income of the fiduciary of such trust or estate as determined for purposes of the federal income tax," subject to certain adjustments not relevant here. Under § 12-701 (a) (4) (C), a resident testamentary trust is "a trust, or a portion of a trust, consisting of property transferred by will of a decedent who at the time of his death was a resident of this state...." Thus, all of the testamentary trusts in this case were resident trusts, and all of their 1993 undistributed taxable income statutorily was taxable in Connecticut.

The statutory taxation scheme of an inter vivos trust, however, is somewhat different and more complicated. Under § 12-701 (a) (4) (D), a resident inter vivos trust is "a trust, or a portion of a trust, consisting of the property of (i) a person who was a resident of this state at the time the property was transferred to the trust if the trust was then irrevocable...."An inter vivos trust's taxable income for federal income taxes is considered—again, subject to certain adjustments not relevant here—to be its "Connecticut taxable income." General Statutes § 12-701 (a) (9). This taxable income is modifiable, however, according to a formula that takes into account whether there is any resident...