Sabine v. Gill
| Decision Date | 15 December 1948 |
| Docket Number | 449 |
| Citation | 51 S.E.2d 1,229 N.C. 599 |
| Parties | SABINE v. GILL, Commissioner of Revenue. |
| Court | North Carolina Supreme Court |
The action is for recovery back of income taxes paid under protest, and brought under authority of G.S. s 105-267.
The plaintiff was at the time of the alleged liability for the tax a resident of the State of North Carolina and a beneficiary under a testamentary trust under which the income taxed was derived from a business carried on, as authorized by the will, by trustees in the State of Virginia, and had there been taxed as income earned in that state. The complaint alleges that the payment of the tax to the Virginia taxing authorities was compulsory, and plaintiff contends that the facts entitle her to the deduction or exemption provided in G.S. s 105-147 (10).
The trust above mentioned was set up in the will of James P Grey, the father of the plaintiff, who was then a resident of Mecklenburg County, North Carolina, and who died in that county on the 30th day of December, 1942. The will was admitted to probate in Mecklenburg County and shortly thereafter, in an ancillary proceeding, was admitted to probate in the Corporation Court of the City of Bristol Virginia. Executors to the will are the Commercial National Bank of Charlotte, F. L. Jackson, Mecklenburg County, North Carolina, and Robert E. Kell of the City of Bristol Virginia. The executors named in the will qualified in North Carolina February 5, 1943, and thereafter, in the same month F. L. Jackson and Robert E. Kell qualified as executors and trustees for the estate in Virginia; and all these parties are now acting as executors and trustees.
At the time of his death the testatortrustor owned about 93 per cent of a hosiery mill and business located in the City of Bristol, Virginia, under the name and style of Grey Hosiery Mills, which was then being operated as a partnership by the said testator and others residing in the State of Virginia. The will provided that the business should be carried on by the trustees named, and to that end, pursuant to authority of a judgment entered in an appropriate proceeding by the Superior Court of Mecklenburg County, North Carolina, and a decree entered by the Corporation Court of the City of Bristol, Virginia, the estate of the testator, through Robert E. Kell and F. L. Jackson, Virginia executors and trustees, was put into a partnership for the operation of the business by the trustees and business partners on the basis that the said estate was, and is, the owner of 93 per cent interest in the business, the remaining 7 per cent being owned by the other partners; 3 per cent having been given to Jackson, individually, by the will. Under the will the Commercial National Bank of Charlotte, as executor and trustee, was made the custodian of all the assets of the estate and empowered to collect, receive and disburse all funds belonging thereto. In deference to this provision the Corporation Court of the City of Bristol, in which the will had been probated and the executors above named and trustees had qualified, in its decree directed, authorized and empowered the Virginia executors and trustees to pay over to and remit to the Commercial National Bank of Charlotte, as disbursing agent and depository, all the distributable income from the Grey Hosiery Mills business to which the estate of the testator should become entitled; and in pursuance thereto the Virginia executors and trustees paid over to and deposited with the said Commercial National Bank of Charlotte the distributable earnings of the Grey Hosiery Mills for the year 1943 to which the estate of the said James P. Grey was entitled as the owner of 93 per cent interest in the business; and out of such distributable income so paid to it for the year 1943 the said Commercial National Bank of Charlotte paid and distributed to the plaintiff the sum of $40,114.51 during the year 1943, that being the portion of the distributable income which the plaintiff was entitled to receive as beneficiary under the will.
After this distribution, on demand of the taxing authorities of that state, the plaintiff paid to the State of Virginia a tax upon the income so received. The State of North Carolina demanded a payment of tax in the sum of $2,663.35 upon the distributed share of income received by the plaintiff. This the plaintiff paid under protest and as above stated brought this action for its recovery back.
The relation of the plaintiff as beneficiary under the will to the estate and the business so conducted is manifested in a portion of Item 6, reading as follows:
'The remainder of the net annual income from my entire trust estate shall be paid to my children, Isabel, Mary and James, in monthly installments, and in the following proportions: Two-fifths to each of my daughters, Isabel and Mary, and onefifth to my son, James, so long as they, and each of them shall live.'
The daughter Mary, now Mrs. Sabine, is plaintiff.
The contest is as to the applicability of the statute invoked by the plaintiff, pertinent provisions of which read as follows:
The defendant demurred to the complaint for that it did not state a cause of action. The demurrer was sustained and the action dismissed. From this judgment plaintiff appealed.
Taliaferro, Clarkson & Grrer and Robert P. Stewart, all of Charlotte, for plaintiff, appellant.
Harry McMullan, Atty. Gen., and James E. Tucker and Peyton B. Abbott, Asst. Attys. Gen., for the State.
The defendant demurs to the complaint on the ground that it does not state a cause of action. Such a demurrer admits the truth of all the allegations of fact and inferences reasonably drawn therefrom. Ferrell v. Worthington, 226 N.C. 609, 39 S.E.2d 812; Smith v. Smith, 225 N.C. 189, 34 S.E.2d 148, 160 A.L.R. 460; Kemp v. Funderburk, 224 N.C. 353, 30 S.E.2d 155. It tests the sufficiency of the allegations in law to present any cause of action for which the plaintiff may demand relief. A fatal defect may occur not only because of the want of averment of an actionable cause, or because of positive allegations showing that the supposed grievance is not actionable. The foregoing summary of facts alleged in the complaint is premised on this rule.
The challenge to the complaint is that the factual situation presented in it does not entitle plaintiff to the exemption she claims by invoking G.S. s 105-147(10); and the question is reduced to a matter of statutory construction.
There is no doubt, nothing else appearing, both Virginia and North Carolina could constitutionally tax the income in question,--Virginia (against the active trustees) as the situs of its earning, and, perahps we might say, the situs of the Virginia trust; and North Carolina (against the beneficiary) as the situs of its reception and residence of the beneficiary. Guaranty Trust Co. v. Virginia, 305 U.S. 19, 59 S.Ct. 1, 83 L.Ed. 16; Lawrence v. State Tax Commission, 286 U.S. 276, 52 S.Ct. 556, 76 L.Ed. 1102, 87 A.L.R. 374. But the court would still have to consider the question of statutory construction and intent.
Passing, for the moment, the interstate feature, double taxation, even within the State, is not ipso facto necessarily obnoxious to the Constitution when the intention to impose it is clear and it is free from discriminatory features, however odious to the taxpayer. But it is not favored; and there is authority that statutes should be so construed as to avoid it when the intent is not clearly expressed. 51 Am.Jur., Taxation, sec. 286, and cases cited.
The plaintiff's argument, oral and in her brief, has brought to our attention instances in which the administrational practice here has avoided the inequity of double taxation, intra-state, by looking through form to substance-- through the trust to the immediate beneficiary. These we...
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