IN THE SUPREME COURT OF MISSISSIPPI

NO. 97-CA-00954-SCT

MISSISSIPPI STATE TAX COMMISSION AND THE

STATE OF MISSISSIPPI

v.

OSCAR E. AUSTIN TRUST AND OSCAR E. AUSTIN,

TRUSTEE

DATE OF JUDGMENT: 06/30/97

TRIAL JUDGE: HON. PAT WISE

COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT

ATTORNEYS FOR APPELLANTS: BRAD D. WILKERSON

BOBBY R. LONG

ATTORNEY FOR APPELLEES: HARRIS H. BARNES

NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES

DISPOSITION: AFFIRMED - 08/13/98

MOTION FOR REHEARING FILED:

MANDATE ISSUED: 9/3/98

BEFORE SULLIVAN, P.J., McRAE AND SMITH, JJ.

McRAE, JUSTICE, FOR THE COURT:

¶1. The Mississippi State Tax Commission appeals a June 30, 1997 order of the Hinds County

Chancery Court, granting a motion for summary judgment in favor of Oscar E. Austin and the Oscar

E. Austin Revocable Trust and denying the Commission's cross-motion for summary judgment. The

chancellor found that the transfer of Austin's automobile into a revocable trust did not subject it to

sales tax pursuant to Miss. Code Ann. § 27-65-201 (1990). We agree.

I.

¶2. Oscar E. Austin established a revocable trust on December 18, 1993, as amended January 29,

1994, known as the Oscar E. Austin Revocable Trust. The trust was designed to provide for his

needs and those of his wife during his lifetime, and at his death, to pass assets to his wife through a

marital deduction trust pursuant to Section 2056 of the Internal Revenue Code, as well as to his

children and grandchildren, and to other named beneficiaries. Various assets were transferred from

Austin, as creator, to the trust with Austin as trustee during his lifetime.
¶3. Austin's 1988 Oldsmobile 98 was among those assets placed in the trust. Title was transferred

from Austin to the trust on May 4, 1994. At that time, he was assessed sales tax in the amount of

$139.00 pursuant to Miss. Code Ann. § 27-65-201, the casual tax imposed on the sale of

automobiles. He paid under protest.

¶4. The Board of Review of the State Tax Commission denied Austin's written Claim for Refund on

April 20, 1995. Austin appealed the decision. By order dated September 27, 1995, the Commission

denied Austin's request for a refund he sought in the amount of $139.00 he paid upon transferring his

automobile to the trust, stating:

. . . Miss. Code Ann. § 27-65-201 (1972) provides that a three percent (3%) tax is imposed on

every "person" purchasing any motor vehicle required to be registered in this state. This statute

is commonly referred to as the casual sales tax on motor vehicles. In defining "person," the sales

tax law, Miss. Code Ann. § 27-65-3(c) provides that trusts are included within said term.

Therefore, the Commission is satisfied that the transaction in question is subject to the tax.

¶5. On October 12, 1995, the Oscar E. Austin Revocable Trust, by and through Oscar E. Austin,

Trustee, filed a complaint in the Chancery Court of the First Judicial District of Hinds County

appealing the Commission's ruling that the transfer of Austin's personal automobile into a revocable

trust, set up as an alternative to a will, was a transfer pursuant to Miss. Code Ann. § 27-65-201 and

subject to a casual sales tax.

¶6. Austin filed a motion for summary judgment on February 20, 1996, asserting that, as a matter of

law, he was not liable for sales tax on the transfer of his automobile to the trust since the transaction

was not a "purchase" as contemplated by Miss. Code Ann. § 27-65-201. The Commission filed a

cross-motion for summary judgment, asserting that transfer of title to a motor vehicle is a taxable

event, reflected by the transfer documents which showed Austin as the seller and the trust as the

purchaser. A hearing on the motions was held on March 7, 1997. Finding that the transfer of the

automobile title from Austin's name to the Trust was not subject to the tax on the sale of motor

vehicles, the chancellor entered an order on July 15, 1997, granting the Trust's motion for summary

judgment and denying the Commission's cross-motion for summary judgment. The Commission was

ordered to remit $139.00 plus interest to the Trust.

II.

¶7. This Court, like the chancery court, reviews decisions of the State Tax Commission under the

arbitrary and capricious standard. Kerr-McGee Chemical Corp. v. Buelow, 670 So. 2d 12, 16 (Miss.

1995); Mississippi State Tax Comm'n v. Jenkins, 624 So. 2d 91, 92 (Miss. 1993). However, the

Supreme Court will not defer to the Commission's interpretation of a taxation statute when the

interpretation is repugnant to the plain meaning thereof. Mississippi State Tax Comm'n v. Dyer Inv.

Co., Inc., 507 So. 2d 1287, 1289 (Miss. 1987). Further, this Court reviews the chancellor's findings

of fact under the manifest error/substantial evidence rule. Mississippi State Tax Comm'n v. Medical

Devices, Inc., 624 So. 2d 987, 989 (Miss. 1993). This Court reviews the application of the law de

novo and the scope of review is plenary. Id. at 989.

III.
¶8. A living trust is but one of many forms of will substitutes. See, Douglas H. Lefeve, Note, Will

Substitutes in Mississippi, 41 Miss. L. J. 177, 185-86 (1969). By definition, such a trust, when

revocable, as well as any title to property contained therein, "continue[s] and exist[s] only at the will

and pleasure of the settler." Hiserodt v. Hamlett, 74 Miss. 37, 47, 20 So. 143, 145 (1896).

Discussing the requisites of transferring property by means of a valid and enforceable trust, whether

revocable or not, this Court has stated that "'[i]t is not essential, however, that the donor should part

with the possession in cases where he thus creates or declares a trust.'" Ladner v. Ladner, 128 Miss.

75, 79, 90 So. 593, 595 (1922)(quoting 2 Pomeroy, Equity Jurisprudence, § 997). At issue, in a case

of first impression before this Court, is whether the transfer of title to an individual's automobile,

which is to remain in his use and possession, from his own name to that of a revocable trust, for

which he is both creator and trustee, is subject to state sales tax pursuant to Miss. Code Ann. § 27-

65-201 (1990).

¶9. Sales of motor vehicles in Mississippi are taxed pursuant to § 27-65-201, which provides in

relevant part:

Tax upon sale or use of motor vehicles.

(1) For the purposes of this section, unless the context otherwise requires, the term "motor

vehicle" means a motor vehicle required to be registered or licensed by the county tax collectors

pursuant to Section 27-19-43, Mississippi Code of 1972.

(2) Upon every person, firm or corporation purchasing other than at wholesale within this state

any motor vehicle required to be registered or licensed with the tax collector of any county in

this state from any person, firm or corporation which is not a licensed dealer engaged in selling

motor vehicles, there shall be levied and collected a sales tax at the rate of three percent (3%) of

the true value of the motor vehicle as calculated by using the most current official motor vehicle

assessment schedule supplied by the State Tax Commission.

* * * * *

(7) The tax levied by this section shall not apply to the following:

(a) Transfers of legal ownership of motor vehicles between husband and wife, parent and child,

or grandparents and grandchildren, unless the transferor is a licensed dealer of motor vehicles

and the transfer of the motor vehicle is made in the regular course of business.

(b) Transfers of legal ownership of motor vehicles pursuant to a will or pursuant to any law

providing for the distribution of the property of one dying intestate.

(c) Transfers of legal ownership of motor vehicles ten (10) or more years after the date of the

manufacture of such vehicle.

In ruling that Austin's transfer of his automobile title from his individual name to the revocable trust

was not a taxable event, the Chancellor found that the transaction was neither a "sale" as

contemplated by § 27-65-201 nor a "closed transaction" pursuant to the Miss. Code Ann. § 27-65-

3(f)(1990) definition of "sale," as the Commission now argues. She further rejected the Trust's
argument that the transaction fell under the statutory exemption for property transferring under a

will.

¶10. The parties agree that while no definition of "purchase" appears in the statutory definitions,

"purchase" is interchangeable with the term "sale," defined as follows in § 27-65-3(f):

(f) "Sale" or "sales" includes the barter or exchange of property as well as the sale thereof for

money or other consideration, and every closed transaction by which the title to taxable

property passes shall constitute a taxable event.

They differ, however, as to whether the transfer of title to the vehicle from Austin, individually, to the

Austin Trust, is a "closed transaction," for which no statutory definition is provided. While each party

cites authority for its tenets of statutory interpretation, neither cites any to support its construction of

the statutory language.

¶11. The Commission relies on Tower Loan of Mississippi, Inc. v. Mississippi State Tax Comm'n,

662 So. 2d 1077 (Miss. 1995) for the proposition that where there is no statutory definition of a

word or phrase, "it must be given its common and ordinary meaning." Id. at 1083 (employing the

Black's Law Dictionary definition of "book value"). See also Lambert v. Ogden, 423 So. 2d 1319

(Miss. 1982)(using the popular definition of "truck" found in Webster's Third New International

Dictionary). Thus, the Commission turns to Webster's to define "closed transaction" as a "completed

business transaction."(1) It neglects to point out that Black's Law Dictionary defines "closed

transaction" as a

Term used in tax law to describe a taxable event which has been consummated. For example,

diminution in value of goodwill of business is not a closed transaction so as to permit deduction

of the diminution of value as ordinary loss.

Black's Law Dictionary 255 (6th ed. 1990). Further, it condemns the chancellor's reliance on federal

tax law and Corpus Juris Secundum, asserting that income tax and sales tax must be analyzed

separately.

¶12. The Trust urges an interpretation of the statutory language which gives effect to every provision

of the statute, Brady v. John Hancock Mutual Life Insurance Co., 342 So. 2d 295 (Miss. 1977)

and which will achieve a rational result, citing Hunt v. Hunt, 629 So. 2d 548 (Miss. 1992), partially

overruled on other grounds, Powell v. Powell, 644 So. 2d 269 (Miss. 1994). Thus, the Trust argues

that the chancellor correctly considered the sales tax statute in light of estate tax law and sought to

achieve a rational result.

¶13. The chancellor noted that while Mississippi estate tax law, Miss. Code Ann. § 27-9-1 et seq.

(rev. 1991 and 1996), does not expressly address revocable trusts,(2) pursuant to § 27-9-59, terms of

the section are to be construed consistently with federal law. She found that under federal law, the

exchange of property between a trust and the person treated as "owner of the trust" is not recognized

as a sale. She further noted the general principle that:

There can be no sale, exchange, or other disposition of property for tax purposes unless and

until the transaction involved is completed and closed. In any given case, the test to be applied
to determine whether a transaction is a closed one is a practical test. There are no hard and fast

rules of thumb for determining when a sale is completed and closed for tax purposes. The

intention of the parties is important, as is the transfer of title. Also significant is the transfer of

possession, dominion, and control of the property. Retention of a right that has no practical or

commercial value does not preclude a transfer from constituting a sale for tax purposes. A sale

may be complete for tax purposes despite the existence of future contingencies. The issue may

turn on whether there has been such substantial performance of conditions precedent as imposes

on the purchaser an unconditional obligation to pay. No single factor is controlling, and the

determination of whether a transaction is complete often becomes a question of fact for the trier

of fact, to be resolved by a practical consideration of all surrounding facts and circumstances.

47A C.J.S. Internal Revenue § 100 (1996)(footnotes omitted). Considering these factors, the

chancellor found that Austin's continuing income and estate tax liability for the trust assets, his

ongoing beneficial interest in the assets and his power to re-vest title of the car in himself, either by

revoking the trust or by withdrawing the asset from the trust, favored a finding that the transaction

was not closed.

¶14. The chancellor's determination that transfer of the automobile title from Austin individually to

the revocable trust is not a closed transaction subject to the casual sales tax further is consistent with

federal law. In Estate of Sanford v. Commissioner of Internal Revenue, 308 U.S. 39, 43-45 (1939),

the United States Supreme Court held that a transfer to a revocable trust is not complete until the

right to revoke is extinguished by the settlor's death. Likewise, in Burnet v. Guggenheim, 288 U.S.

280, 284-286 (1933), the Court found that for gift tax purposes, the creation and funding of a

revocable trust is not a gift because when the settlor retains the power to revoke, the "gift" is

"inchoate and imperfect."

IV.

¶15. The Commission's interpretation of the statute is arbitrary and capricious as well as contrary to

the intent of the statute. We further are not persuaded by its argument that the Legislature expressly

intended "any completed transfer of title" to be subject to sales tax unless specifically exempt

pursuant to §§ 27-65-201(7)(a), (b) or (c), based on H.B. 1729, introduced in the 1997 Regular

Session of the Legislature to amend § 27-65-201 to provide further statutory exemptions for

transfers of legal ownership made into revocable trusts. According to the Commission, the fact that

the bill died substantiates its position that the Legislature intended that all "completed transfers" save

those already excepted should be exempt from sales tax. We decline to speculate.

¶16. The chancellor properly recognized that statutory sales tax provisions cannot be construed in a

vacuum and when applied must be read in light of the laws of trusts and estates. We therefore affirm

the decision of the court below.

¶17. JUDGMENT IS AFFIRMED.

PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, SMITH, MILLS AND

WALLER, JJ., CONCUR. ROBERTS, J., CONCURS IN RESULT ONLY.
1. According to the Commission's brief, Webster's defines "closed" as to end, conclude, finish or

complete, and "transaction" as a business deal.

2. The section's only reference to trusts appears to be Miss. Code Ann. § 27-9-7(d), which consistent

with federal law, provides that a transfer of assets into a trust within three years of death, is deemed

prima facie to have been made in contemplation of death.