Court Opinion

ID: 7846138
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:10:54.670526+00
Date Added: 2024-06-11T16:25:01.905377
License: Public Domain

MCDONALD, J.,
with whom BERDON, J., joins, dissenting. I disagree with the majority’s conclusion that the imposition of Connecticut’s state income tax on the entire income of the trusts does not violate due process of law or the commerce clause of the United States constitution. I would hold that Connecticut’s attempt to tax the entire income, all of which was produced outside the state of Connecticut, violates both due process and the negative implications of the commerce clause.
“The Due Process and Commerce Clauses of the [United States] Constitution . . . prevent States that impose an income-based tax on nonresidents from tax[ing] value earned outside [the taxing State’s] borders.” (Internal quotation marks omitted.) Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298, 303, 114 S. Ct. 2268, 129 L. Ed. 2d 244 (1994).
The due process clause “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax . . . and that the income attributed to the State for tax purposes must be rationally related to values connected with the taxing State . . . .” (Citations omitted; internal quotation marks omitted.) Quill Corp. v. North Dakota, 504 U.S. 298, 306, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992). In establishing the minimum connection between Connecticut and these trusts, the majority focuses on the fact that the settlors of the trusts resided in Connecticut at the time the trusts were created, and that Connecticut offers some benefits and opportunities to the trusts. *215The majority relies on the fact that the probate courts of this state “serve as the repository of the documents that define the beneficiaries’ rights . . . give legal effect to those documents and oversee [the beneficiaries’] lights and interests . . . remain open and available to ensure that the beneficiaries’ rights are being protected . . . [and are open for the] submission of accounts and any other matters of trust administration [which] gives the trustee the assurance that its administration of the trust will not be successfully challenged at a later time.”
The majority, in sum, justifies a tax on the entire income of the trusts based on the fact that the Connecticut probate courts are open for accounting and trust administration. Our constitution1 requires Connecticut courts to be open to all persons, including residents of other states or countries. The fact that the courts are open and available to nonresidents hardly would justify a Connecticut income tax on all of the income of New Yorkers or Canadians, simply because they may have a case within the subject matter jurisdiction of Connecticut courts.
While the trusts were indeed created in Connecticut under Connecticut law, all of the income has been realized in the state of New York. Therefore, none of the benefits cited by the majority is fiscally relevant, and Connecticut has done nothing in the years since the creation of the trusts to foster the economic environment in which the trust income has been produced. See Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444, 61 S. Ct. 246, 85 L. Ed. 267 (1940) (taxing power exerted by state must bear “fiscal relation to protection, opportunities and benefits given by the state”). As the Court *216of Appeals of Michigan has stated: “We analogize the present case to a hypothetical statute authorizing that any person bom in Michigan to resident parents is deemed a resident and taxable as such, no matter where they reside or earn their income. We believe this would be clearly outside the state’s power to impose taxes.” Blue v. Dept. of Treasury, 185 Mich. App. 406, 411, 462 N.W.2d 762 (1990). Following the majority of courts that have considered this issue, I would hold that Connecticut’s attempt to tax the entire income of these tmsts violates the fourteenth amendment due process clause of the United States constitution. See, e.g., id.; In re Swift, 727 S.W.2d 880, 882 (Mo. 1987); Pennoyer v. Taxation Division Director, 5 N.J. Tax 386, 399 (1983); Mercantile-Safe Deposit & Trust Co. v. Murphy, 15 N.Y.2d 579, 581, 203 N.E.2d 490, 255 N.Y.S.2d 96 (1964); Taylor v. State Tax Commission, 85 App. Div. 2d 821, 821-22, 445 N.Y.S.2d 648 (1981); see also Augusta v. Kimball, 91 Me. 605, 611, 40 A. 666 (1898). The majority claims that, in light of Quill Corp. v. North Dakota, supra, 504 U.S. 298, these earlier state decisions are no longer good law. Quill Corp., however, concerned a North Dakota use tax on mail order purchases stored, used or consumed within North Dakota, and did not address the issue of taxing tmst income based upon the settlor’s residence.
I also disagree with the majority’s conclusion that imposing Connecticut’s state income tax upon the tmsts does not violate the commerce clause. The majority dismisses as speculative the plaintiffs argument that the risk of multiple taxation of the tmst income violates the commerce clause and its implicit prohibition against discrimination favoring intrastate commerce. The United States Supreme Court has clearly indicated that the risk, and not only the actuality, of multiple state taxation suffices to establish such a constitutional violation. See Goldberg v. Sweet, 488 U.S. 252, 261-62, 109 *217S. Ct. 582, 102 L. Ed. 2d 607 (1989); see also B. Bittker, Regulation of Interstate and Foreign Commerce (1999) § 8.07, p. 8-23; 1 J. Hellerstein & W. Hellerstein, State Taxation (3d Ed. 1998) ¶14.08 [1] [a], p. 4-39. To avoid the risk of multiple taxation, taxes that affect interstate commerce must be apportioned fairly between the states with potential jurisdiction to tax. Goldberg v. Sweet, supra, 260-61 (“the central purpose behind the apportionment requirement is to ensure that each State taxes only its fair share of an interstate transaction”); B. Bittker, supra, § 8.08, p. 8-26 (apportionment of taxed enterprise’s global value among states claiming jurisdiction to tax is “a criterion of the constitutionality of state taxes”). In Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 103 S. Ct. 2933, 77 L. Ed. 2d 545 (1983), Justice Brennan, writing for the majority, stated: “The first, and . . . obvious, component of fairness in an apportionment formula is what might be called internal consistency — that is, the formula must be such that, if applied by every jurisdiction, it would result in no more than all of the unitary business’ income being taxed. The second and more difficult requirement is what might be called external consistency — the factor or factors used in the apportionment formula must actually reflect a reasonable sense of how income is generated.” Id., 169.
The majority approves of imposing Connecticut’s state income tax on the entire trust income even though New York or some other state might also tax that income. Connecticut’s income tax is not apportioned at all and there is a risk of double taxation of the trust income. I believe that the lack of any apportionment of the tax liability between states with potential jurisdiction to tax these trusts is fatal to the Connecticut taxing scheme. Furthermore, the Connecticut scheme fails to provide the trusts with any credit for taxes paid to any other state. See, e.g., Barringer v. Griffes, 1 F.3d 1331, *2181336 (2d Cir. 1993) (noting importance of credits in saving tax schemes from unconstitutionality). Without any provisions for apportionment or tax credits, the Connecticut income tax on these trusts lacks internal and external consistency and violates the negative implications of the commerce clause.
For the foregoing reasons, I respectfully dissent.

 The constitution of Connecticut, article first, § 10, provides: “All courts shall be open, and every person, for an injury done to him in his person, property or reputation, shall have remedy by due course of law, and right and justice administered without sale, denial or delay.”