Tax Type
Fiduciary Income Tax
Description
Resident estates and trusts defined; Domicile of the decedent and beneficiary; Trust business
Topic
Estates and Trusts
Date Issued
03-27-1997
March 27, 1997
Re: § 58.1-1821 Application: Fiduciary Income Tax
Dear************************
This will reply to your letter of May 1, 1995, in which you submit a protective claim pursuant to Code of Virginia § 58.1-1824 for a refund of 1991 through 1993 Virginia fiduciary income taxes paid by the ******************. As permitted in that code section, l believe it is appropriate to decide this claim on the merits in the manner provided in Code of Virginia § 58.1-1822, for appeals under Code of Virginia § 58.1-1821. I apologize for the delay in replying.
FACTS
*********** (the “Decedent") was a domiciliary resident of Virginia at his death. His Virginia will provided for the disposal of all Virginia property. The decedent also has a New York will which provided for the disposal of property other than Virginia property. His residuary estate was held in a trust for the decedent’s son, a Virginia resident, and a trust for the decedent's wife, who has been deceased since 1974. A New York bank, as trustee, administered both trusts and held all trust assets in New York. It filed timely Virginia fiduciary returns for the taxable years 1991 through 1993 and paid the appropriate tax.
In 1994, the New York bank resigned as trustee and a Virginia bank began administering the trusts. The assets of the trust were subsequently transferred from New York to Virginia. You contend that the trusts did not have sufficient nexus in Virginia during the taxable years 1991 through 1993, as indicated in Public Document (P.D.) 93-189 (8/26/93) to require the filing of Virginia fiduciary income tax returns.
You also contend that the Virginia banking laws would be violated if the trusts were Virginia resident trusts. You state that if the trusts were resident trusts, then the out-of-state bank would have been illegally engaged in the Virginia trust business. Since the bank could serve as trustee, taxing the trusts as resident trusts would violate the interstate commerce clause.
For the reasons above, you request that the tax paid on these returns be refunded.
DETERMINATION
Taxation Nexus
Pursuant to Code of Virginia § 58.1-302, copy enclosed, a "resident estate or trust" includes "A trust created by will of a decedent who at his death was domiciled in the Commonwealth." The decedent in this case was domiciled in Virginia at the time of his death. Thus, the subject trusts were resident trusts during the taxable years of 1991 through 1993.
P. D. 93-189, copy enclosed, carved out a small exception to Code of Virginia § 58.1-302. It stated that when:
-
- ...the grantor [of the trust(s)] is deceased, the Department must consider not just the domicile of the grantor at the time the trust was created but also the current domicile of the trustee(s), beneficiaries, and the location of the Trust property...where none of these parties are Virginia domiciles, and the trust property is not located in Virginia, there may not be sufficient nexus to impose the tax.
In P.D. 93-189, the Tax Commissioner stated that sufficient nexus to tax did not exist since neither the beneficiaries, trustees, nor the trust property were in Virginia. The Tax Commissioner concluded that nexus did not exist because none of the entities enjoyed the benefit or protection of Virginia laws. However, in the instant case, the beneficiary of the trust was a Virginia resident during the tax years in question. Since the beneficiary, who receives the benefit and protection of Virginia law, resides in the Commonwealth, there is sufficient nexus for the taxation of the trust income.
Banking Laws
As you correctly stated in your letter, the out-of-state bank could serve as trustee of the trusts. The out-of-state banks administration of the trusts did not violate Virginia banking law. Code of Virginia § 6.1-5, copy enclosed, provides that no entity, unless permitted by law, shall engage in the "trust business" in Virginia.
Clearly, engaging in the trust business means holding oneself out to the public as a fiduciary or performing as a fiduciary in the regular course of business. Nothing in the stated facts indicates that the out-state-bank held itself out to the Virginia public as a fiduciary or performed the duties of a fiduciary in Virginia in the regular course of its business. If the bank was not violating any banking laws, the classification of the trusts as "resident trusts," and taxing them accordingly, does not interfere with interstate commerce.
Based on the information provided, the trusts were considered resident trusts of Virginia for the taxable years of 1991 through 1993. Sufficient nexus for taxation exists and taxing the trusts does not violate interstate commerce. As a result, the original Virginia fiduciary returns were appropriately filed and there is no basis to allow the refunds requested in your letter. If you have further questions, you may contact******** at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9661B
Rulings of the Tax Commissioner