Harrison v. Commissioner of Corporations and Taxation

• Decision Date: 11 September 1930
• Citation: 272 Mass. 422
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: CHARLES L. HARRISON & others, trustees, v. COMMISSIONER OF CORPORATIONS AND TAXATION.

272 Mass. 422

CHARLES L. HARRISON & others, trustees, v. COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

September 11, 1930

November 5, 1929.

Present: RUGG, C.

J., CROSBY, PIERCE CARROLL, & WAIT, JJ.

Tax, On income. Trust. Jurisdiction. Constitutional Law, Taxation.

Allegations of a complaint under G.L.c. 62, Section 47, for abatement of an income tax, brought by three trustees, two resident in this

Commonwealth and one in Connecticut, appointed by a court of the State of New York under the will, allowed by that court, of one who had died there domiciled, that the trusts were "resident trusts" in that State, that the trustees regardless of their residence were subject to taxation in that State for the same gains as had been here taxed, that they there had been taxed therefor and had paid that exaction, and that the trustees were required to act as a unit in holding, owning and dealing with the trust property, were sufficient upon demurrer to the complaint to require the conclusion that by the laws of that State the situs of such trust continued for purposes of taxation within that sovereign power.

The income tax established by our laws is a tax on property and not an excise tax.

Where a will of one who died domiciled in another State has been allowed by a court of such domicil and such court has appointed trustees under the will to hold and administer intangible personal property according to its provisions with responsibility for accounting to such court, it is within the competency of that State to require that such intangible personal property shall have and continue to have a situs for taxation within its jurisdiction irrespective of the place where the evidences of title to such property are kept and of the places of residences of the trustees.

When such other State in all the circumstances above described by its enactment has established a situs for taxation within its jurisdiction over such intangible personal property, this Commonwealth has no jurisdiction also to impose a tax under the provisions of G.L.c. 62,

Section 10. If three trustees under a will only one of whom is a resident of this

Commonwealth, who were appointed by the court of the domicil of a testator in another State by the laws of which there was not established a situs for taxation within its jurisdiction of intangible personalty, receive gains and profits from purchases and sales of securities, as to which there is no beneficial owner at present ascertainable and which under the provisions of the will, as accretions of capital, become a part of a remainder ultimately to vest upon the happening of a contingency or in persons unborn or not yet ascertained, the Commonwealth is not given by G.L.c. 62, Section 10 jurisdiction to levy a tax upon the entire amount of such income nor upon the proportion of the income attributable to the resident trustee.

THREE COMPLAINTS filed in the Superior Court respectively on February 9, May 11 and May 11, 1928, for the abatement of certain income taxes.

The respondent demurred. The demurrers were heard by Weed, J., and were sustained. The complainants appealed.

G. Calkins, for trustees under the will of William A.

Slater.

H. LeB.

Sampson, (E.A. Howe with him,) for trustees under the will of Francis D. Lecompte and trustees under the will of Frank E. Lecompte.

R.A. Cutter, Assistant Attorney General, for the respondent.

RUGG, C.J. These are complaints for the abatement of income taxes assessed to and paid by the complainants on account of net gains and profits received from purchases and sales of securities. The complainants in each of the three cases are trustees under the wills of testators domiciled outside this Commonwealth at the time of their respective deaths, and hold their appointments as trustees under courts of jurisdictions other than this Commonwealth. In the first two cases each testator died a resident of New York. The two trustees in the first case are residents of this Commonwealth. Two of the three trustees in the second case are residents of this Commonwealth and the other is a resident of Connecticut. In these two complaints it is alleged that the trustees were appointed by the appropriate court of the State of New York, that under the laws of the State of New York said trust, having been created by the will of a resident of New York and proved and allowed in a court of that State, is a resident trust, and the trustees irrespective of the places of their residences became liable to the State of New York for an income tax on the gains and profits here sought to be taxed, that the gains taxed by the defendant were subject to taxation in that State and that taxes thereon have been assessed and paid, that the trustees, regardless of their residence, are accountable for the administration of their trusts to the courts of New York and are required by the law of New York to act as a unit in holding, owning and dealing with the property of the trust. In the third case the testator died a resident of the District of Columbia. The trustees, one a resident of this Commonwealth, one of New York and one of California, derive their appointments from the appropriate court of the District of Columbia. The trust is being administered by that court under and pursuant to the laws of the District of Columbia. The net gains and profits here taxed represent accretions of capital and not income. No part thereof has been or can be paid over to persons entitled to receive the net income of the trust during their lives or to any direct or contingent remaindermen until the termination of all the numerous life estates. In no one of the complaints is there an allegation as to the place where the trust property is physically kept. In each case the income taxed was accumulated under the terms of the will for the benefit of unborn or unascertained remaindermen or persons with contingent interests. The defendant demurred to the complaint in each case. The demurrer was sustained with leave to amend, and in each case without amendment the complainants appealed. All the facts set forth in each complaint must be accepted as true for the purposes of this decision.

It is not necessary to state the testamentary provisions in each case with reference to its particular facts. It seems plain that the income upon which the tax was levied became a part of a remainder ultimately to vest upon the happening of a contingency or in persons now unborn or not yet ascertained. Thomson v. Ludington, 104 Mass. 193 . Clarke v. Fay, 205 Mass. 228 . Carr v. New England Anti-Vivisection Society, 234 Mass. 217 .

It is too plain for discussion that the tax in each case was assessed upon the excess of gains over the losses received by each trust from purchases or sales of intangible personal property and hence was income taxable at the rate of three per cent per annum if otherwise subject to taxation under our laws. G.L.c. 62, Section 5 (c) as amended by St. 1922, c. 449. (See now St. 1928, c. 217, Section 1.) Tax Commissioner v. Putnam, 227 Mass. 522 , 524-531. Brown v. Commissioner of Corporations & Taxation, 242 Mass. 242 , 244.

It is provided by G.L.c. 62, Section 10, so far as here material, that "The income received by estates held in trust by trustees, any one of whom is an inhabitant of the commonwealth . . . shall be subject to the taxes assessed 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 accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests shall be taxed as if accumulated for the benefit of inhabitants of the commonwealth." The question to be decided is whether the income is taxable upon the facts of each case under the part of Section 10 just quoted.

The language of the section as mere matter of fair construction and interpretation covers the facts here stated and makes the income subject to the tax. The first sentence of the section renders subject to the tax such income received by resident trustees or by trustees appointed by a court of this Commonwealth as is payable to or accumulated for the benefit of inhabitants of this Commonwealth. Residence of the beneficiary within the Commonwealth is made the basis of the tax imposed by this sentence. The second sentence puts in the same classification for purposes of taxation income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests. In substance and effect it defines such beneficiaries as belonging to the same class as beneficiaries who are inhabitants of the Commonwealth. Those two sentences were somewhat separated in the original enactment of the income tax law, see St. 1916, c. 269, Section 9, and were even more widely set apart by the amendments made by St. 1918, c. 207. But they were in substantially the same words and had the same meaning and effect. The revision whereby they were put in juxtaposition in the present Section 10 wrought no change in meaning, but simply made their relation more clear.

Examination of the history of the parts of Section 10 does not disclose any legislative purpose to make exceptions to its general phraseology. That section indicates an intention on the part of the General Court to tax all the income there described which is within its power to tax. It is as broad as the jurisdiction of the Commonwealth. Kinney v. Treasurer & Receiver General, 207 Mass. 368 , 369. Peabody v. Treasurer & Receiver General, 215 Mass. 129 , 130. Follett v. Commissioner of Corporations & Taxation, 267 Mass. 115 , 118.

The question therefore is narrowed to...