Tax Type
Estate Tax
Description
Resident estates and trusts; Defined; Bank reorganization of trust operation
Topic
Estates and Trusts
Date Issued
11-18-1997
November 18, 1997
Re: Request for a Ruling: Estate, Generation Skipping and Income Tax
Dear*************
This will reply to your letter of September 16, 1997, in which you request a ruling on the application of the Virginia estate tax, generation skipping tax, and income tax to trusts managed by*******(the "Bank") and its subsidiaries.
FACTS
The Bank is an out-of-state, multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Bank, through subsidiary banks, currently operates in numerous states, provides a wide range of commercial and banking services and trust services in these states. The Bank is in the process of completing a reorganization whereby its banking subsidiaries and their operations would be combined into one of the Bank's subsidiaries ("Virginia Subsidiary"). The Virginia Subsidiary will have its main office in another state.
The trust operation of the Bank is presently carried on and administered by separate personnel physically located in Virginia. Following the reorganization, the trust operations of the Bank will be carried on by a separate division of the Virginia Subsidiary. The division will be physically situated in Virginia.
The trust division of The Virginia Subsidiary administers trusts which hold principally intangible assets and real estate assets. The intangible assets are passively held and are not utilized in a trade or business conducted by the trust or an entity controlled or affiliated with the trust. The intangible assets owned by the trusts are held by the Deposit Trust Company in New York, either in fungible bulk, where no certificates are issued, or in a vault, where certificates are issued. In the case of assets held in fungible bulk, The Virginia Subsidiary currently keeps records as to which trust the assets are allocable to and the separate Virginia division will maintain these records after the reorganization.
Each trust managed by the Virginia Subsidiary is classified for federal income tax purposes as a trust and not an association taxable as a corporation, and their interests of the beneficiaries are not represented by transferable shares. Finally, the place of administration of each trust managed by The Virginia Subsidiary is in Virginia, and will remain in Virginia following the reorganization.
You ask whether the reorganization will not alter or affect the application of the Virginia estate tax, generation skipping transfer tax or income tax to any of the trusts managed by any of the banking subsidiaries.
DETERMINATION
Estate Tax
Virginia imposes estate tax in the amount of the federal credit on the transfer of the taxable estate of all resident decedents. Code of Virginia § 58.1-902, copy enclosed. The property of a resident includes real property situated in Virginia, tangible personal property having an actual situs in Virginia and intangible personal property owned by the resident regardless of where it is located. If the real and tangible personal property of a resident is located outside of the Commonwealth, and is subject to a death tax in another state, the amount of tax due is credited with the lesser of:
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- i) the amount of the death tax paid to the other state and credit against the federal estate tax or ii) an amount computed by multiplying the federal credit by a fraction, the numerator of which is the value of that part of the gross estate over which another state or states have jurisdiction to the same extend to which Virginia would exert jurisdiction under this chapter with respect to the residents of such other state or states and the denominator of which is the values of the decedent's estate. Id.
A nonresident's Virginia taxable estate consists of real property, real property interests and tangible personal property having a situs in Virginia. Code of Virginia § 58.1-903, copy enclosed. The tax on nonresidents taxable estate equals:
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- an amount computed by multiplying the federal credit by a fraction, the numerator of which is the value of that part of the gross estate over which Virginia has jurisdiction for estate tax purposes and the denominator of which is the value of the decedent's gross estate. Id.
The transfer of real and tangible personal property having a situs in Virginia, which was owned by aliens at the time of their death, is also subject to estate taxation. Code of Virginia § 58.1-904, copy enclosed.
The Virginia estate tax is dependent upon either the residence of the decedent or the situs of the property. It is not dependent upon the location or residence of the trustee administering the estate. Thus, the reorganization will not affect estate tax paid by the trustees of the banking subsidiaries.
Generation Skipping Tax
Virginia imposes a generation skipping transfer tax equal to the federal credit. Code of Virginia § 58.1-935, copy enclosed. In the case of a resident, tax is imposed:
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- [I]n an amount equal to the amount allowable as credit for state legacy taxes under § 2604 of the Internal Revenue Code, to the extent such credit exceeds the aggregate amount of all tax on the same transfer actually paid to the several states of the United States, other than Virginia.
Code of Virginia § 58.1-936, copy enclosed, provides that in the case of a nonresident, tax is imposed where the generation skipping transfer includes real or personal property having a situs in Virginia:
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- [I]n an amount equal to the amount allowable as a credit for state legacy taxes under § 2604 of the Internal Revenue Code, reduced by an amount which bears the same ratio to the total state tax credit allowable for federal generation skipping transfer tax purposes as the value of the transferred property taxable by all other states bears to the value of the gross generation skipping transfer for federal generation skipping transfer tax purposes.
The generation skipping tax is dependent on the residence of the original transferor of the property or the situs of the real or personal property being transferred. It is not dependent upon the location or domicile of the trustee administering the trust. Thus, the reorganization will not affect generation skipping tax paid by the trustees of the banking subsidiaries.
Income Tax - Trusts
The Virginia taxable income of a resident estate or trust means its federal taxable income with the addition or subtraction of the appropriate fiduciary adjustment.
Code of Virginia § 58.1-361, copy enclosed. The Virginia taxable income to a nonresident trust will be its share of income, gain, loss and deduction attributable to Virginia sources, increased or decreased by certain modifications. Code of Virginia § 58.1-362.
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- A Virginia resident trust is defined as:
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- 1 ) [t]he estate of a decedent who at his death was domiciled in the Commonwealth;
2) [a] trust created by will of a decedent what as his death was domiciled in the Commonwealth;
3) [a] trust created by or consisting of property of a person domiciled in the Commonwealth; or
4) [a] trust of estate which is being administered in the Commonwealth.
- 1 ) [t]he estate of a decedent who at his death was domiciled in the Commonwealth;
In the instant case, the Virginia Subsidiary would be managing the trusts which are currently administered by Bank's subsidiaries located in Virginia. The issue is whether the reorganization affects whether the trusts are administered in or without the Commonwealth.
Virginia Regulation 23 VAC 10-115-10, copy enclosed, provides that "a trust is administered in Virginia, if for example, its assets are located in Virginia, its fiduciary is a resident of Virginia, or it is under the supervision of a Virginia Court." This regulation does not address the situation in which assets are located outside of Virginia and the trustee is an institution, rather than a natural person. In addition, the statutes and the rulings issued by the Tax Commissioner have not addressed the administration of a trust by an institutional trustee.
After the reorganization, a separate division of the Virginia Subsidiary will be physically located in Virginia. This division will consist of the former trust personnel and officers of the Bank who previously administered trusts. Factually, this situation is analogous to a natural person who is a trustee and resides in Virginia. Such a trust would be a resident trust for Virginia income tax purposes. Therefore, the trusts managed by this particular division will be considered to be administered in Virginia and will be treated for income tax purposes as resident trusts.
Nonresident trusts are defined as any estate or trust which is not a resident trust or estate. Code of Virginia § 58.1-302, copy enclosed. Only nonresident trust income from Virginia sources is subject to Virginia income taxation. Code of Virginia § 58.1-325, copy enclosed. Income and deductions from Virginia sources include:
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- 1. Items of income, gain, loss and deduction attributable to
a. The ownership of any interest in real or tangible personal property in Virginia;
b. A business, trade, profession or occupation carried on in Virginia;
- 1. Items of income, gain, loss and deduction attributable to
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- 2. Income from intangible personal property, including annuities, dividends, interest, royalties and gains form the disposition of intangible personal property to the extent that such income is form property employed by the taxpayer in a business, trade, profession, or occupation carried on in Virginia.
For nonresident trust income to be subject to taxation in Virginia, the income must be derived from business carried on in Virginia or from property sited in Virginia. The location or domicile of the trustee administering the trust is irrelevant. Thus, the reorganization will not affect the taxability on nonresident trust income.
Accordingly, for the reasons enumerated in this ruling, the reorganization will not affect the application of the Virginia estate tax, generation skipping tax, or income tax to the trusts managed by the Bank and the Virginia Subsidiary. I trust that this ruling addresses your request. If you have any questions, you may contact *** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13003B
Rulings of the Tax Commissioner