Goodenough v. State

• Decision Date: 05 June 1950
• Docket Number: No. 4,4
• Citation: 43 N.W.2d 235,328 Mich. 56
• Parties: GOODENOUGH v. STATE et al. BROOKS v. STATE et al.
• Court: Michigan Supreme Court

Page 235

43 N.W.2d 235

328 Mich. 56

GOODENOUGH v. STATE et al.

BROOKS v. STATE et al.

No. 4.

Supreme Court of Michigan.

June 5, 1950.

Opinion Modified on Rehearing Oct. 2, 1950.

See 44 N.W.2d 161.

Daniel W. Goodenough, Detroit, for appellant.

Stephen J. Roth, Attorney General, Edmund E. Shepherd, Solicitor General, Lansing, T. Carl Holbrook, Daniel J. O'Hara, Assistants Attorney General, for appellees.

Dickinson, Wright, Davis, McKean & Cudlip, Detroit, for Michigan Bankers Ass'n and National Bank of Detroit.

Before the Entire Bench.

NORTH, Justice.

After having paid an intangibles tax under protest plaintiff, Margaret B. Goodenough, brought suit in the court of claims for a refund. Judgment was entered for defendants, being the State of Michigan the department of revenue of Michigan, and Louis M. Nims, commissioner. Leave having been granted, plaintiff has appealed. The material facts are quite fully summarized as follows in the opinion filed by the circuit judge:

'In 1919 Lawrence S. Holt, a resident of the District of Columbia and never a resident of the State of Michigan, now deceased, established two inter vivos (irrevocable) trusts (of intangible securities) in Pennsylvania to be administered by Pennsylvania corporate trustees in Pennsylvania, as its situs, for the benefit of his children and grandchildren. The terms of the trust agreements are identical. The trustees are given full legal title and full management and control of the principal, and none of the beneficiaries is given any power in regard therto. The net income is to be distributed equally six times each year between the settlor's children and grandchildren living at such times. At the expiration of 20 years after the decease of the last survivor of the children and grandchildren living at the establishment of the trust, the principal is to be transferred outright in equal shares to the settlor's then living grandchildren born after the establishment of the trust and to the issue per stirpes of each deceased grandchild. The settlor expressly declared that the beneficiaries' shares of principal and income shall not be subject to 'their anticipation, sale, pledge, debts, contracts, engagements or liabilities, and not subject or liable to attachment or sequestration under any legal or equitable or other process.' The trustee is not given the power to pay out any part of the principal to any beneficiary except upon the termination of the trust, as above stated.

'The trust administration and the trust securities are wholly and permanently outside the State of Michigan. The investments made by the Pennsylvania trustees are evidenced by bonds, certificates of stock and other paper physically located outside the State of Michigan.'

Plaintiff, a granddaughter of the settlor living at the time (1919) he established the two trusts here involved, was and is a resident of Michigan. She has neither actual nor equitable ownership, nor any right of control or management, of the corpus of the trust or any part thereof. The tax involved was for substantially one-third of a year--June 6, 1947, the effective date of the 1947 amendment to the intangibles tax law, to September 30, 1947, which marked the end of the trustees' fiscal year.

Plaintiff received one-ninth of the net income from the two Pennsylvania trusts. She concedes that a tax may be justly assessed against her 'right to net income in a trust estate located in Pennsylvania,' since such 'right has value as property and its benefits are enjoyed in Michigan.' The basis of plaintiff's asserted right to a refund is that in fixing the amount of her tax the computation was not confined to her net income from the trust estates. Instead, the amount of plaintiff's tax was increased by including in the basis of computation an alleged ownership of or beneficial interest in the assets of the trusts including the nonprofit paying assets thereof. In that respect plaintiff claims a violation of her constitutional rights in that she is deprived of property without due process of law because she is: '* * * being taxed in respect to property which she does not own in fact or in law and as to which the State of Michigan has no jurisdiction in fact or in law. The (intangibles tax) act ¹ purports to tax plaintiff's interest as a beneficiary under two Pennsylvania trusts, but, on a theory contrary to fact for the purpose of describing the object and measure of the tax, enlarges her interest to include rights not owned by her and not within the jurisdiction of the State of Michigan. The bare fact that a resident beneficiary's only right is to receive net income from an out-of-state trust if she is living on the specified dates of income distribution does not make her the 'owner', in fact or in law, of the separate intangibles comprising the out-of-state trust and thus taxable on each separate intangible.'

The conditions essential for imposing and the method of computing the intangibles tax, so far as herein applicable, are provided in the statute as follows: 'Sec. 2. For the calendar year 1940, and for each year thereafter or portion thereof there is hereby levied upon each resident or non-resident owner of intangible personal property not hereinafter exempted having a situs within this state, and there shall be collected from such owner an annual specific tax on the privilege of ownership of each item of such property owned by him. Except as hereinafter provided the tax on income producing intangible personal property shall be 3 per cent of the income but in no event less than 1/10 of 1 per cent of the face or par value of each item (or in the case of corporate stock or other evidence of corporate ownership having no par or face value, of the average per share contribution to capital, surplus and other funds in consideration of which all of the then outstanding shares of stock of the same class of such corporation shall have been issued). Except as hereinafter provided the tax on non-income producing intangible personal property shall be 1/10 of 1 per cent of said face, par or contributed value. * * *' C.L.1948, § 205.132, Stat.Ann.1947 Cum.Supp. § 7.556(2).

As to the statutory meaning of 'intangible personal property,' 'situs,' and 'owner,' the pertinent provisions are:

'Sec. 1. That when used in this act: * * *

'(b) The term 'intangible personal property' means: Moneys on hand or on deposit or in transit, shares of stock, * * * annuities; accounts and notes receivable, * * * conditional sale contracts receivable, and other obligations for the payment of money; equitable interest in any of the foregoing classes of intangible personal property, including interest of beneficiaries under trusts whether created inter vivos or by will; * * *

'(c) The 'situs' of intangible personal property for the purpose of taxation under the provisions of this act shall be the domicile of the owner thereof, except that any intangible personal property, not otherwise exempt under the laws of this state, owned by a person having his domicile outside of this state but used in connection with or acquired from the conduct of his business in Michigan, or placed in the hands of a manager or agent in Michigan to the extent that such intangible personal property is invested in a course of repeated transactions in obligations of person residing in Michigan or secured by property located in Michigan, shall be deemed to have a situs at the place of business, or where such manager or agent resides, as the case may be, within this state: Provided * * * Intangible personal property owned by a person domiciled in Michigan, but used in connection with or acquired from the conduct of his business outside of Michigan, or placed in the hands of a manager or agent outside of Michigan to the extent that such property is invested in a course of repeated transactions in obligations of persons residing outside of Michigan, and being taxed as personal property or intangible personal property at the place where such business is carried on or transacted or where such manager or agent acts or resides shall not be deemed to have a situs in Michigan. * * *

'(i) The word 'owner' means any person who: (1) has both the entire legal and equitable interest in intangible personal property or both a legal and equitable estate therein which entitles him to the present enjoyment thereof; * * * (3) is the beneficiary of an inter vivos or testamentary trust, but only to the extent that such trust embraces intangible personal property. * * * A beneficiary domiciled in this state shall be taxable irrespective of the state or other jurisdiction of the creation or administration of said trust.' C.L.1948, § 205.131, Stat.Ann.1947 Cum.Supp. § 7.556(1).

By defendants having included as an element in the computation of plaintiff's tax her one-ninth alleged beneficial interest in nonprofit paying intangible assets of the two Pennsylvania trusts, her tax paid under protest was increased in the amount of $21.58. The uncontroverted facts which have a material bearing on defendants' right to so compute plaintiff's intangibles tax are as follows:

(1) The intangibles constituting the corpus of the trusts are owned and controlled solely by the trustees. The evidence of the intangibles remained at all times in Pennsylvania. None of the trustees ever resided in Michigan, nor did the settlor.

(2) The trusts have their situs in Pennsylvania. They were created under Pennsylvania law, and none of the trust investments have even been made in Michigan.

(3) Plaintiff is a resident of...