In a recent legal alert, McGuireWoods summarized the case Kimberly Rice Kaestner 1992 Family Trust vs. North Carolina Department of Revenue. The post begins,

On July 5, 2016, the North Carolina Court of Appeals affirmed the Business Court ruling in the matter of Kimberly Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue.  As noted in our Alert of May 1, 2015, the Business Court held that the application of North Carolina General Statute Section 105-160.2 (the “Statute”) is unconstitutional as applied to the Kimberly Rice Kaestner 1992 family trust (the “Trust”), and ordered refund the Trust had applied for.

The opinion issued by the Business Court noted that the trust has no connections to North Carolina other than the residence of the beneficiary, which is insufficient to satisfy either the Due Process or Commerce clause of the U.S. Constitution to support state taxation of the trust.  In its July 5, 2016, decision, the Court of Appeals agreed with the Business Court, but analyzed the constitutionality of the statute, as applied to the trust, solely under the Due Process Clause.

Applying the minimum contacts requirement of the Due Process Clause, the Court of Appeals looked to the decisions of Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and International Shoe Co. v. Washington, 326 U.S. 310 (1945), that “it is essential in each case that there be some act by which the [party] purposefully avails itself of the privilege of conducting activities within the forum State.”  The Court of Appeals found that the trust did not maintain any physical presence in North Carolina, never held assets located in North Carolina, did not keep records in North Carolina, and could not otherwise be said to have a physical presence in North Carolina. The only connection between the trust and North Carolina is the residence of the beneficiary.

For the full story click here: North Carolina Court of Appeals Affirms the Unconstitutionality of a State Income Tax on a Non-North Carolina Trust

Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal