Comm'r of Corps. & Taxation v. Second Nat. Bank of Boston

• Citation: 30 N.E.2d 889,308 Mass. 1
• Parties: COMMISSIONER OF CORPORATIONS AND TAXATION v. SECOND NAT. BANK OF BOSTON et al.
• Decision Date: 04 January 1941
• Court: United States State Supreme Judicial Court of Massachusetts

308 Mass. 1

30 N.E.2d 889

COMMISSIONER OF CORPORATIONS AND TAXATION

v.SECOND NAT. BANK OF BOSTON et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 4, 1941.

Proceeding by the Commissioner of Corporations and Taxation for assessment of an income tax against the Second National Bank of Boston and others as trustees under a trust indenture. From a decision of the Appellate Tax Board abating the tax assessed, the Commissioner appeals.

Order granting abatement.

Appeal from Decision of Appellate Tax Board.

Argued before FIELD, C. J., and DONAHUE, LUMMUS, DOLAN, and RONAN, JJ.

E. O. Proctor, Asst. Atty. Gen., for Commissioner.

G. R. Stobbs, of Worcester, for taxpayer.

FIELD, Chief Justice.

This is an appeal by the commissioner of corporations and taxation from a decision of the Appellate Tax Board abating an income tax assessed upon the trustees under an indenture of trust dated April 1, 1924, between H. Nelson Slater, then of Webster, Massachusetts, grantor, Mabel Hunt Slater and certain trustees, on income received by the trustees under said indenture during the calendar year ending December 31, 1936. G.L.(Ter.Ed.) c. 58A; St.1937, c. 400.

The trustees under said indenture during said year 1936 and thereafter were said H. Nelson Slater, said Mabel Hunt Slater, both residents of New York City, and the Second National Bank of Boston, a national banking corporation having a usual place of business in the city of Boston and having been duly appointed a trustee of said trust by the Probate Court for the county of Worcester. The income upon which the tax was assessed consisted of the excess of gains over losses from purchases or sales of intangibles by said trustees. See G.L. (Tter.Ed.) c. 62, § 5(c). Said excess for the year in question amounted to $10,149.99. As only one of the trustees was ‘an inhabitant of the commonwealth * * * or * * * derived his appointment from a court of the commonwealth,’ within the meaning of G.L.(Ter.Ed.) c. 62, § 10, only one third of such excess of gains over losses was assessed. The tax assessed thereon at the rate of 3% amounted to $101.50. An additional tax of 10% of this amount-$10.15-was assessed under the provisions of St.1937, c. 422. The aggregate tax so assessed, together with deficiency interest of $1.78, a total of $113.43, was paid on October 1, 1937. This is the amount of the abatement granted by the Appellate Tax Board.

It was provided by the trust indenture that the net income of the trust should be paid to Mabel Hunt Slater during her life, that upon her death the trust shall terminate, and that ‘the Trust estate * * * shall be paid to or upon the order of the grantor, or his legal representatives.’ The indenture further provides that it may be terminated or modified at any time by the agreement of the grantor and the beneficiary.

Though the excess of gains over losses from purchases or sales of intangibles above referred to constituted income for the purposes of the income tax, it was not distributable to the life beneficiary but was received and accumulated for the beneficiaries of the remainder interest. First National Bank of Boston v. Commissioner of Corporations & Taxation, 274 Mass. 583, 586, 175 N.E. 97. See Tax Commissioner v. Putnam, 227 Mass. 522, 529, 116 N.E. 904, L.R.A.1917F, 806;Harvard Trust Co. v. Commissioner of Corporations & Taxation, 284 Mass. 225, 227, 187 N.E. 596.

The governing statutes are as follows: G.L.(Ter.Ed.) c. 62, § 8(d), provides that ‘Such part of the income received by trustees * * * as is payable to or accumulated for persons not inhabitants of the commonwealth is exempt from the taxes imposed by this chapter.’ Section 10 of said chapter provides in part as follows: ‘The income received by estate held in trust by trustees or other fiduciaries under the will of a person who died an inhabitant of the commonwealth or under a trust created by a person who was either at the time of the creation of the trust or at any time during the year for which the income is computed an inhabitant of the commonwealth, any one of which trustees or other fiduciaries is an inhabitant of the commonwealth or has derived his appointment from a court of the commonwealth, shall be subject to the taxes imposed by this chapter to the extent that the persons to whom the income from the trust is payable or for whose benefit it is accumulated are inhabitants of the commonwealth. Income so received and accumulated for unborn or unascertained persons or persons with uncertain interests shall be taxed as if accumulated for the benefit of a known inhabitant of the commonwealth to the following extent: * * * (3) Where any one or more of the trustees is an inhabitant of the commonwealth the proportion of the income accumulated for unborn or unascertained persons or persons with uncertain interests shall be taxed which is represented by the ratio of trustees who are inhabitants of the commonwealth to the total number of trustees. For the purposes of this section * * * income shall be deemed to be accumulated for unborn or unascertained persons or persons with uncertain interests when thus accumulated by estates, by trustees or other fiduciaries, who are subject to the provisions of this section * * * for the benefit of any future interest other than a remainder presently vested in a person or persons in being not subject to be divested by the happening of any contingency expressly mentioned in the instrument creating the trust.’

These statutory provisions deal with the taxation of income received by trustees in the year for which the tax is assessed. See Commissioner of Corporations & Taxation v. Alford, 282 Mass. 113, 118, 184 N.E. 437. Income so received is divided by these provisions into three classes: (a) that which is payable to or accumulated for persons who are ‘inhabitants of the commonwealth’ is taxable, G.L.(Ter.Ed.) c. 62, § 10; (b) that which is ‘payable to or accumulated for persons not inhabitants of the commonwealth’ section 8(d) is not taxable, and (c) that which is ‘accumulated for unborn or unascertained persons or persons with uncertain interests' section 10(3) is taxable, that is, it is treated in the same way as income accumulated for persons who are inhabitants of the Commonwealth. All income presently payable falls into one or the other of the first two classes, but income that is ‘accumulated may fall into any one of the three classes. The person for whom income is ‘accumulated,’ however, is not necessarily the person to whom this income will actually be payable by the trustee when the time for such payment arrives. It is ‘accumulated,’ within the meaning of the statute, for the person or persons who, at the time it is accumulated, have the present right to receive in the future the income so ‘accumulated,’ that is, the person or persons having the future interests therein. See Commissioner of Corporations & Taxation v. Alford, 282 Mass. 113, 118, 119, 184 N.E. 437. Such income accumulated ‘for the benefit of any future interest’ is taxable unless that interest is ‘a remainder presently vested in a person or persons in being not subject to be divested by the happening of any contingency expressly mentioned in the instrument creating the trust.’ G.L.(Ter.Ed.) c. 62, § 10(3).

These words, ‘a remainder presently vested,’ apparently are used in the statute in their primary common-law sense, although, in accordance with common usage, as including equitable future interests in personalty, rather than in the broader sense of future interests that are assignable and transmissible by will or by the laws regulating intestate succession. See Gray, Rule Against Perpetuities (3d Ed.), §§ 116, 117, 118. In Commissioner of Corporations & Taxation v. Alford, 282 Mass. 113, 114, 117-119, 184 N.E. 437, the correlative words, ‘contingent interests,’ in the statute in its earlier form (G.L. c. 62, § 10) were treated as used in the primary common law sense and the interests there in question were held to be ‘vested,’ rather than ‘contingent’ in accordance with the primary meaning of these words, though they were subject to being diminished if not wholly divested. See also Harrison v. Commissioner of Corporations & Taxation, 272 Mass. 422, 424, 425, 172 N.E. 605, 71 A.L.R. 677. Compare First National Bank of Boston v. Commissioner of Corporations & Taxation, 274 Mass. 583, 175 N.E. 97. After the situations arose that were considered in these three cases, but before the decision in the Alford case, the statute was changed to its present form by St.1931, c. 456, § 1. Income accumulated for the benefit of ‘persons with uncertain interests' was made taxable instead of income accumulated for the benefit of ‘persons with contingent interests.’ Every future interest was included in the class except a ‘remainder presently vested in a person or persons in being not subject to be divested by the happening of any contingency expressly mentioned in the instrument creating the trust.’ It is apparent that when this statute uses words such as ‘remainder’, ‘vested,’ ‘contingency’ and ‘divested’ it continues to use language in its primary common law sense.

Ordinarily assignability and transmissibility by will or by the laws of intestate succession are attributes of a ‘vested’ remainder when the word ‘vested’ is used in its primary common law sense (see Am.Law Inst. Restatement: Property, §§ 163-165; Loring v. Carnes, 148 Mass. 223, 225, 19 N.E. 343) as well as when it is used in the broader sense. Clearly, within the meaning of the statute, the existence of these attributes does not prevent a remainder's being ‘vested.’ And though it is not infrequently said that a person by transferring property owned by him divests himself of such property or the ownership thereof, the words ‘subject to be divested’ when used of a ‘remainder presently vested’ naturally mean that such remainder can be cut short prior to its otherwise normal termination (see Am.Law Inst....