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North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust

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Supreme Court of the United States
North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust
Term: 2018
Important Dates
Argument: April 16, 2019
Decided: June 21, 2019
Outcome
Affirmed
Vote
9-0
Majority
Chief Justice John G. Roberts • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Elena Kagan • Neil Gorsuch • Brett Kavanaugh


North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust is a case argued before the Supreme Court of the United States on April 16, 2019, during the court's 2018-2019 term. It came on a writ of certiorari to the North Carolina Supreme Court.[1]

On June 21, 2019, the U.S. Supreme Court unanimously affirmed the judgment of the North Carolina Supreme Court, holding a state is not authorized to tax trust income of an in-state beneficiary if the income has not been distributed to the beneficiary during the years in question. Justice Sonia Sotomayor wrote the opinion. Justice Samuel Alito filed a concurring opinion, joined by Chief Justice John Roberts and Justice Neil Gorsuch.[2] Click here for more information on the opinion.

HIGHLIGHTS
  • The case: In 1992, Joseph Lee Rice III established a trust in New York for the benefit of Rice's descendants. In 2002, the trust was divided into three sub-trusts, including one for his daughter—the Kimberley Rice Kaestner 1992 Family Trust ("the Trust"). From 2005 to 2008, the Trust paid state income taxes on income accrued during those years, although no funds were distributed. In 2009, Trust representatives filed a claim for a refund of taxes paid to the North Carolina Department of Revenue. The department denied the request. The representatives then took the suit to state court, asking the court to require the department to refund all the paid taxes and declare unconstitutional the state statute enabling the state's department of revenue to collect taxes from the foreign trust. The state court found that the state statute was unconstitutional as applied and granted the Trust’s motion for summary judgment. The North Carolina Department of Revenue appealed. The state appellate court found that the fact that when the beneficiary of the trust is living in North Carolina, whereas the trust location, its assets, and its trustee, are all outside the state, does not establish sufficient contacts with North Carolina to permit taxing the trust in that state. The state supreme court affirmed.
  • The issues: Whether the due process clause prohibits states from taxing trusts based on trust beneficiaries’ in-state residency.
  • The outcome: the U.S. Supreme Court unanimously affirmed the judgment of the North Carolina Supreme Court, holding a state is not authorized to tax trust income of an in-state beneficiary if the income has not been distributed to the beneficiary during the years in question.[2]


    • You can review the lower court's opinion here.[3]

    Timeline

    Background

    In 1992, Joseph Lee Rice III established a trust in New York for the benefit of Rice's descendants, with the initial trustee being William B. Matteson. In 2002, the trust was divided into three sub-trusts—one for each of Rice's children. One of these was the Kimberley Rice Kaestner 1992 Family Trust ("the Trust"), which benefited Rice's daughter Kimberly Rice Kaestner, who was a resident of North Carolina at the time.

    Matteson resigned as trustee in 2005 and was replaced as trustee by David Bernstein, who was a resident of Connecticut. From 2005 to 2008, the Trust paid state income taxes on income accrued during those years, although no funds were distributed. In 2009, Trust representatives filed a claim for a refund of taxes paid to the North Carolina Department of Revenue. The department denied the request. The representatives then took the suit to state court. They asked the court to require the department to refund all the paid taxes and declare unconstitutional the state statute enabling the state's department of revenue to collect taxes from the foreign trust. The judge "granted the motion as to plaintiff's claim for injunctive relief, but denied the motion as to plaintiff's constitutional claims."[3]

    Both parties subsequently filed motions for summary judgment as to the constitutional claims. The state court found that the state statute was unconstitutional as applied and granted the Trust’s motion for summary judgment. The North Carolina Department of Revenue then appealed.

    The state appellate court found that the fact that when the beneficiary of the trust is living in North Carolina, whereas the trust location, its assets, and its trustee, are all outside the state, does not establish sufficient contacts with North Carolina to permit taxing the trust in that state. The state supreme court affirmed.[3]

    Questions presented

    The petitioner presented the following questions to the court:[4]

    Questions presented:
    • Whether the due process clause prohibits states from taxing trusts based on trust beneficiaries’ in-state residency.

    Outcome

    On June 21, 2019, the U.S. Supreme Court unanimously affirmed the judgment of the North Carolina Supreme Court, holding a state is not authorized to tax trust income of an in-state beneficiary if the income has not been distributed to the beneficiary during the years in question.[2]

    Justice Sotomayor wrote the opinion. Justice Alito filed a concurring opinion, joined by Chief Justice Roberts and Justice Gorsuch.[2]

    Opinion

    In her opinion, Justice Sotomayor wrote:[2]

    “ The North Carolina courts held the tax to be unconstitutional when assessed in such a case because the State lacks the minimum connection with the object of its tax that the Constitution requires. We agree and affirm. As applied in these circumstances, the State’s tax violates the Due Process Clause of the Fourteenth Amendment. [5] ”

    Concurring opinion

    Justice Alito filed a concurring opinion, joined by Chief Justice Roberts and Justice Gorsuch.

    In his concurring opinion, Justice Alito wrote:[2]

    “ The opinion of the Court rightly concludes that the assets in this trust and the trust’s undistributed income cannot be taxed by North Carolina because the resident beneficiary lacks control, possession, or enjoyment of the trust assets. The Court’s discussion of the peculiarities of this trust does not change the governing standard, nor does it alter the reasoning applied in our earlier cases. On that basis, I concur.[5] ”

    Text of the opinion

    Read the full opinion here.

    Audio



    Transcript

    See also

    External links

    Footnotes

    1. ↑ Supreme Court of the United States, "Docket No. 18-457," accessed March 20, 2019
    2. ↑ 2.0 2.1 2.2 2.3 2.4 2.5 Supreme Court of the United States, North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, decided June 21, 2019
    3. ↑ 3.0 3.1 3.2 Case Text, "Kimberley Rice Kaestner 1992 Family Tr. v. N.C. Dep't of Revenue," accessed March 20, 2019
    4. ↑ SCOTUS Blog, "North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust," accessed March 20, 2019
    5. ↑ 5.0 5.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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