Court Opinion

ID: 9647031
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:21:43.342679+00
Date Added: 2024-06-11T18:11:44.970242
License: Public Domain

BLACKMAR, Justice,
dissenting.
In re Swift, 727 S.W.2d 880, 882 (Mo. banc 1987), recognizes the due process limitations on the state’s power to tax the income of a trust in holding that § 143.-331(2), RSMo 1986, did not authorize the taxation of income from a trust containing only intangible personal property, when neither the trustees nor the beneficiaries were Missouri residents, even though the trust had been created by the deed and will of a Missouri resident whose estate had been administered in Missouri. We held that a tax on income could be justified only on the basis of “contemporary benefits and protections” to the “subject property or entity.”
The present result, far from being supported by Swift, is manifestly inconsistent with that holding, to the extent that it sanctions the imposition of Missouri income tax on the income from intangible personal property of a trust in which the trustee and all eligible beneficiaries are nonresidents. The only difference between this case and Swift is that here the trust owns, along with substantial intangible property, an undivided one-half interest in income producing real estate in Columbia, Missouri. The director seizes on this ownership as justification for a tax not only on the rental income, but upon the entire income of the trust.
This application, as Swift shows, offends the due process clauses of the federal and state constitutions. U.S. Const.Amend. XIV, § 1; Mo. Const, art. I, § 10. Missouri affords contemporaneous benefits and protection only to the real estate, on which it may levy both property and income taxes. It provides no benefit or protection to the intangible personal property. Nothing in the record demonstrates that Missouri courts could acquire jurisdiction over the trustee, the beneficiary, or the trust corpus, except for in rem jurisdiction over the Missouri real estate. See Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). Section 143.331(2) is overreaching and unconstitutional as applied to the intangible trust property not located in Missouri. The statutory concept of “resident trust” does not provide constitutional justification for the levy of a tax against income from property receiving no contemporaneous benefit or protection.
It is familiar that states may not tax beyond their borders absent a sufficient nexus between the taxing state and the entity it proposes to tax. Miller Bros. Co. v. Maryland, 347 U.S. 340, 74 S.Ct. 535, 98 L.Ed. 744 (1954); Safe Deposit and Trust Co. of Baltimore, Md. v. Virginia, 280 U.S. 83, 50 S.Ct. 59, 74 L.Ed. 180 (1929). Even if there is a contact, the taxing state must provide the entity with benefits and protection commensurate with the amount of tax it imposes. Greenough v. Tax Assessors of Newport, 331 U.S. 486, 67 S.Ct. 1400, 91 L.Ed. 1621 (1947). Wisconsin v. J.C. Penney Co., 311 U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267 (1940). Thus, the principal opinion stands Swift on its head when it cites that opinion as authority for the result reached here. Consistent with numerous United States Supreme Court cases before it Swift holds, as follows:
an income tax is justified only when contemporary benefits and protections are *517provided the subject property or entity....
There was no occasion in Swift to discuss the situation which now confronts us, and anything that case says about what property of a nonresident could be taxed is dicta. Swift does not support a tax on income beyond the scope of the benefit and protection conferred. Swift, supra at 882. Any other conclusion would lead to absurd results.1
Missouri trust law further teaches that the principal opinion upholds an unconstitutional application of § 143.331(2). A trust is not a legal entity. The trustee is the legal owner of the trust property, in which the beneficiaries have equitable ownership. See Greenough, supra 331 U.S. at 494, 67 S.Ct. at 1404, and Masterson v. Plummer, 343 S.W.2d 352, 355 (Mo.App.1961).2 I do not sense a purpose on the part of the legislature, in establishing trusts as income taxpayers, of departing from normal concepts of trust law as developed in equity jurisprudence or of taxing any income that could not be constitutionally taxed.3 Thus, a nonresident trustee is not subject to tax on the trust income unless an individual owner would be subject to tax under similar circumstances.
The majority misconstrues Greenough when it states that Missouri can lawfully tax the out-of-state property because Missouri is “ready willing and capable” of furnishing benefits “if requested.” Majority at 514. The result in Greenough depended on the fact that a co-trustee of a New York trust resided in Rhode Island. Consequently, Rhode Island taxed the co-trustee, the owner, on one half the value of intangibles held by him and the New York trustee. “The citizenship of the trustee and not the seat of the trust or the residence of the beneficiary is the controlling factor.” Greenough, supra 331 U.S. at 495-6, 67 S.Ct. at 1404-05. If in the future a resident of Missouri is appointed trustee of the Rollins trust, the taxgatherer may reappear. If a Missourian’s contingent interest vests, then that interest could be subject to Missouri taxation.
The director argues that if the trust income from intangibles is not subject to taxation in Missouri it will not be taxed anywhere. I am unable to see how this is demonstrated by the record before us but, even if it is, it makes no difference. We are concerned here only with Missouri’s power to tax. Inasmuch as both the trustee and the beneficiaries are nonresidents, states other than Missouri have the sole claim to tax the trust income. Missouri’s claim cannot be improved if other legislatures do not choose to exercise their power, or if their revenue authorities do not enforce their legislative directions.
It is surprising that the principal opinion cites Greenough, which supports the authority of the state of a co-trustee’s domicile to tax the trustee’s one-half interest in the intangible personal property of the trust. This case supports the present taxpayer’s position, not that of the director. It applies traditional principles of trust law in treating the trustee as the owner of the trust property.
We do not have to decide whether § 143.-331(2) authorizes the taxation of the trust income from the Missouri real estate, in spite of its constitutional infirmities. This action is based on a claim for refund; refund of the tax on that income was not claimed. We have no authority to award relief in excess of that claim.
The decision should be reversed and the case remanded with directions to sustain only so much of the assessment as relates to the Missouri real estate.

. E.g. $1,000 per year rental for a parking lot supporting taxation on $1,000,000 of income from stocks and bonds.

. See generally Harris Banking Co. v. Miller, 190 Mo. 640, 649, 89 S.W. 629 (1905); Simmons v. Friday, 359 Mo. 812, 224 S.W.2d 90, 95 (1949); McDaniel Title Co. v. Lemons, 626 S.W.2d 686, 690 (Mo.App.1981).

.See Taylor v. State Tax Comm'n, 85 A.D.2d 821, 445 N.Y.S.2d 648, 649 (1981), holding that the concept of “resident trust" must be applied in a way consistent with due process.