In a judgment entered April 3, 1989, the trial court held MCL 206.18; MSA 7.557(118) to be unconstitutional as applied to the present case. Section 18 defines any trust created by, or consisting of property of, a person domiciled in Michigan at the time the trust becomes irrevocable as a "resident trust” subject to Michigan income taxation. The trial court found insufficient contacts with Michigan in this case to justify imposition of the tax on the trust. Defendant appeals as of right. We affirm.
In 1961, Laura C. Perry, a Michigan resident, executed a revocable living trust. One year later Perry died while residing in Michigan, at which time the trust became irrevocable. The income beneficiary of the trust is decedent’s daughter, who has been a Florida resident since December, 1978. There are also six residuary beneficiaries whose rights are created upon the death of the income
Defendant imposed the tax on the basis that it viewed the present trust as a resident trust under MCL 206.18; MSA 7.557(118), which defines a resident trust as one created by a person domiciled in Michigan at the time the trust becomes irrevocable. The resident trust is subject to taxation from "receiving, earning or otherwise acquiring income from any source whatsoever.” MCL 206.51; MSA 7.557(151). Plaintiff objected to the imposition of the tax on the grounds that the imposition of the tax violated the equal protection and due process guarantees of both federal and state constitutions by attempting to tax activities and assets beyond the boundaries and control of the state, that the imposition of the tax poses a threat of double taxation, that the tax imposes a burden on interstate commerce, and that the imposition of the tax abridges the privilege of a citizen to travel. The trial court ruled that the tax was a violation of defendant’s due process rights under the Fourteenth Amendment. A state statute which attempts to tax things wholly beyond the state’s
On appeal, defendant alleges that residency provides a sufficient nexus between the imposition of the tax and the subject taxed, and that the court erred in holding that § 18 is unconstitutional as applied to the present case. Specifically, defendant argues that the continuing residency of the trust within Michigan and the benefits and protection of laws of this state extended to the trust established the requisite nexus and jurisdiction to impose a tax. We disagree.
The Missouri Supreme Court in
In re Swift,
An income tax is justified only when contemporary benefits and protections are provided the subject property or entity during the relevant taxing period. In determining whether this state has a sufficient nexus to support the imposition of an income tax on trust income, we consider six points of contact: (1) the domicile of the settlor, (2) the state in which the trust is created, (3) the location of the trust property, (4) the domicile of the beneficiaries, (5) the domicile of the trustees, and (6) the location of the administration of the trust. For purposes of supporting an income tax, the first two of these factors require the ongoing protection or benefits of state law only to the extent that one or more of the other four factors is present.
The Missouri Court went on to hold that, since Missouri law provided no present benefits or protections to the subject trust, beneficiaries, trustees or property, the State of Missouri did not have sufficient connections to impose an income tax.
We hold that there are insufficient connections between the trust and the State of Michigan to justify the imposition of an income tax. We choose to follow the cases in Missouri and New York restricting the state’s power to impose tax on resident trusts where neither the trustee nor the trust property are within the state. We conclude that there is no ongoing protection or benefit to the trust. All of the income-producing trust property is located in Florida while the only trust property in Michigan is nonincome-producing. Both the income beneficiary of the trust and the trustee are domiciled in Florida. Most importantly, the trust is administered and registered in Florida. We are unpersuaded by defendant’s arguments that the fact that the trust is defined as a resident trust imparts legal protections and jurisdiction.
We conclude that MCL 206.18; MSA 7.577(118), in defining the present trust as a resident trust subject to Michigan income tax, violates the due process clause of the Fourteenth Amendment.
Affirmed.