328 Mich. 56 | Mich. | 1950
After having paid an intangibles tax under protest, plaintiff, Margaret B. Goodenough, brought suit in the court of claims for a refund. Judgment was entered for defendants, being the State of Michigan, the department of revenue of Michigan, and Louis M. Nims, commissioner. Leave having been granted, plaintiff has appealed. The material facts are quite fully summarized as follows in the opinion filed by the circuit judge:
“In 1919 Lawrence S. Holt, a resident of the District of Columbia and never a resident of the State of Michigan, noiv deceased, established two inter vivos [irrevocable] trusts [of intangible securities] in Pennsylvania to be administered by Pennsylvania corporate trustees in Pennsylvania, as its situs, for the benefit of his children and grandchildren. The terms of the trust agreements are identical. The trustees are given full legal title and full manage
“The trust administration and the trust securities are wholly and permanently outside the State of Michigan. The investments made by the Pennsylvania trustees are evidenced by bonds, certificates of stock and other paper' physically located outside the State of Michigan.”
Plaintiff, a granddaughter of the settlor living at the time (1919) he established the 2 trusts here involved, was and is a resident of Michigan. She has neither actual nor equitable ownership, nor any right of control or management, of the corpus of the trust or any part thereof. The tax involved was for substantially one-third of a year—June 6, 1947, the effective date of the 1947 amendment to the intangibles tax law, to September 30,1947, which marked the end of the trustees’ fiscal year.
Plaintiff received one-ninth of the net income from the 2 Pennsylvania trusts. She concedes that a tax may be justly assessed against her “right to net in
The conditions essential for imposing and the method of computing the intangibles tax, so far as herein applicable, are provided in the statute as follows:
“Sec. 2. * * * For the calendar year 1940, and for each year thereafter or portion thereof there is hereby levied upon each resident or nonresident
As to the statutory meaning of “intangible personal property,” “situs,” and “owner,” the pertinent provisions are:
“Sec. 1. That when used in this act: * * *
“(b) The term ‘intangible personal property’ means: Moneys on hand or on deposit or in transit, shares of stock, * * * annuities; accounts and notes receivable, * * * conditional sale contracts receivable, and other obligations for the payment of money; equitable interest in any of the foregoing-classes of intangible personal property, including interest of beneficiaries under trusts whether created inter vivos or by will; * * *
“(c) The ‘situs’ of intangible personal property for the purpose of taxation under the provisions of this act shall be the domicile of the owner thereof, except that any intangible personal property, not otherwise exempt under the laws of this State, owned by a person having- his domicile outside of this State but used in connection with or acquired from the conduct
“(i) The word ‘owner’ means any person who: (1) Has both the entire legal and equitable interest in intangible personal property or both a legal and equitable estate therein which entitles him to the present enjoyment thereof; * * * (3) is the beneficiary of an inter vivos or testamentary trust, but only to the extent that such trust embraces intangible personal property. * * * A beneficiary domiciled in this State shall be taxable irrespective of the State or other jurisdiction of the creation or administration of said trust.” CL 1948, § 205.131 (Stat Ann 1950 Rev § 7.556 [1]).
By defendants having included as an element in. the computation of plaintiff’s tax her one-ninth alleged beneficial interest in nonprofit-paying intangible assets of the 2 Pennsylvania trusts, her tax paid under protest was increased in the amount of $21.58. The uncontroverted facts which have a
(1) The intangibles constituting the corpus of the trusts are owned and controlled solely by the trustees. The evidence of the intangibles remained at all times in Pennsylvania. None of the trustees ever resided in Michigan, nor did the settlor.
(2) The trusts have their situs in Pennsylvania. They were created under Pennsylvania law, and none of the trust investments have ever been made in Michigan.
(3) Plaintiff is a resident óf.Michigan, but she does not have, and under the trusts she never can have, any right of ownership, either legal or equitable, in the assets of these trusts, nor any control over the management of the trusts. In event of malfeasance or misfeasance on the part of the trustees, plaintiff’s only recourse would be to the Pennsylvania courts. The State of Michigan has not nor can it render plaintiff any benefit or protection incident to the execution of the trusts or to securing payment of her proportionate share of the net income.
(4) Plaintiff’s only beneficial interest in the trusts is her right to share on the basis of one-ninth in the net income.
Defendants admit that under the provisions of the intangibles tax act as it was prior to the 1947 amendment, the tax herein involved could not be sustained in view of the holding of this Court in Tyler v. Department of Revenue, 311 Mich 698. But defendants contend that under and because of the amendments to the statute made by PA 1947, No 175, to which we are about to direct attention, the tax which plaintiff contests was validly imposed as a “privilege” tax.
By PA 1947, No 175, there was inserted in the body of the act the following provisions, which wé
No decision of a court of last resort has been found which in its factual background and legal issues raised is on all fours with the instant case. Each of the respective litigants in this case has cited numerous decisions; but practically all, if not all, of the cited decisions differ from the instant case in that they have a materially different factual background, or that, unlike the instant case, they involve a property (ad valorem) tax, an inheritance tax, a transfer tax, a tax on the corpus of a trust located in a foreign State, or the like.
The basic issue herein presented may be clarified by noting* that the intangibles which constitute the corpus of each of these trust estates are composed of two distinctly separate classes or types as to which the tax was separately imposed—i.e., part are profit producing; and part are nonprofit producing. As already observed plaintiff concedes liability for an intangibles tax computed upon her share of the net income on the profit-producing intangibles. But plaintiff contests the tax imposed on her insofar as the computation of such tax is based upon an alleged
Under tbe facts of the instant case the trustees are tbe “owners” of tbe intangibles which constitute tbe corpus of the respective trusts. Subject to certain exceptions not material to decision herein, the intangible personal property tax act in section 1(c) provides: “The 'situs’ of intangible personal property for the purpose of taxation under the provisions of this act shall be the domicile of the owner thereof.” In his work on taxation, Justice Cooley has said:
“The situs of personal property held by a trustee, for purposes of taxation, is the State or district where the trustee is domiciled; and this includes intangible as well as tangible personal property in his possession. * * * The legislature has power to fix the situs of trust property at the residence of the beneficiary, but the legislature cannot fix the situs of personal property located outside the State in the hands of a nonresident trustee, it seems, in the State where the beneficiary resides.” 2 Cooley on Taxation (4th ed), § 469.
Notwithstanding the case involved a property tax rather than a privilege tax, we think with equal force (and slight modifications indicated) the following is applicable to the instant case:
“Here, where the possessor of the legal title holds the securities in Maryland [Pennsylvania], thus giving them a permanent situs for lawful taxation there, and no person in Virginia [Michigan] ha,s present right to their enjoymént or power to remove them, the fiction [of situs] must be disregarded. It plainly conflicts with fact; the securities did
In a suit which involved a franchise tax exacted for the privilege of doing business in the State which sought to collect the tax from a foreign corporation, which we think is equally applicable to a trust located in a foreign State, the supreme court of the United States said: .
“But the due process clause denies to the State power to tax or regulate the corporation’s property and activities elsewhere. (Citing numerous cases.)” Connecticut General Life Ins. Co. v. Johnson, 303 US 77 (58 S Ct 436, 82 L ed 673).
In a comparatively recent case we have held:
“Intangibles in the custody of a nonresident trustee have no legal situs for taxation in this State and cannot • be brought here under the legal fiction mobilia sequuntur personam.” Tyler v. Department of Revenue (syllabus), supra.
But as before noted, defendants take the position that under the amended statute the tax imposed on plaintiff is a privilege tax, and therefore it can be imposed at the situs of plaintiff’s domicile—i.e., in Michigan. The United States supreme court has said:
“The name by which the tax is described in the statute is, of course, immaterial. Its character must be determined by its incidents.” Dawson v. Kentucky Distilleries & Warehouse Co., 255 US 288 (41 S Ct 272, 274, 65 L ed 638).
It seems pertinent to add the following. If, under the factual situation in the instant case, the tax imposed on plaintiff, insofar as it is based on either an assumed equitable or legal beneficial interest in the nonprofit-producing intangibles, were to be upheld, the essential reasoning would lead to a rather absurd result. For example, if the trusts produced no net income and in consequence plaintiff received no benefit, still she would have to pay a “privilege” tax computed on the basis of 1/10 of 1 per cent, of the statutory value of the nonprofit-producing intangibles—i.e., the face, par or contributed value, ib' hold that paying such a tax is a “privilege” would be a self-evident fallacy. One may not be taxed on the basis of a fallacious assumption that he possesses-a privilege or benefit which in fact he does not possess.
We find nothing in the decisions relied upon by appellees, (including Shivel v. Kent County Treasurer, 295 Mich 10; Curry v. McCanless, 307 US 357
It is not essential to decision in the instant case, nor do we deem it advisable, that we should pass upon the constitutionality of the provisions which by the 1947 amendment were inserted in the statute, and perforce of which defendants assert validity of the tax here involved. It is possible that under a different factual condition the statute as amended might be deemed valid and applicable. Our decision herein is confined to holding that insofar as the amount of plaintiff’s intangibles tax was computed on the basis of plaintiff having a beneficial interest in the corpus of each of the trusts, under the facts of this case, the tax was based upon a fallacious assumption and unlawfully imposed.
Decision in the companion case of Florence H. Brooks v. State of Michigan, et al., which arose on identical facts and presents like legal issues, by stipulation in the trial court was consolidated with the instant case and is controlled by our decision herein. The judgment entered in the court of claims is reversed and the case remanded for entry of judgment for plaintiff in the amount of $21.58, and interest at 5 per cent, per annum from the date of payment, March 31, 1948, together with costs of both courts. In the' companion case a judgment may he entered for plaintiff therein in the sum of $22.19, and interest at 5 per cent, per annum from March 31, 1948, but without costs.
PA 1939, No 301, as amended (CL 1948, § 205.131 et seq. [Stat Ann 1950 Rev § 7.556(1) et seq.]).