THE KIMBERLEY RICE KAESTNER 1992 FAMILY TRUST v. NORTH CAROLINA DEPARTMENT OF REVENUE
No. 307PA15-2
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 8 June 2018
789 S.E.2d 645
On discretionary review pursuant to
Moore & Van Allen PLLC, by Thomas D. Myrick, Neil T. Bloomfield, Jonathan M. Watkins, and Kara N. Bitar, for plaintiff-appellee.
Joshua H. Stein, Attorney General, by Matthew W. Sawchak, Solicitor General, Tenisha S. Jacobs, Special Deputy Attorney General, and James W. Doggett, Deputy Solicitor General; and Law Office of Robert F. Orr, by Robert F. Orr, for defendant-appellant.
JACKSON, Justice.
Opinion of the
In this case we consider whether defendant North Carolina Department of Revenue could tax the income of plaintiff The Kimberly Rice Kaestner 1992 Family Trust pursuant to
As the Business Court noted, the underlying, material facts of this case as established by the evidence in the record are not in dispute. The Joseph Lee Rice, III Family 1992 Trust was created in New York in 1992 for the benefit of the children of the settlor Joseph Lee Rice, III pursuant to a trust agreement between Rice and the initial trustee, William B. Matteson. In 2005 Matteson was replaced as trustee by David Bernstein, who was a resident of Connecticut. Bernstein remained in the position of trustee and remained a Connecticut resident during the entire period of time relevant to this case. The trust was and is governed by the laws of the State of New York, of which Rice was a resident. No party to the trust resided in North Carolina until Rice‘s daughter and a primary beneficiary of the trust, Kimberly Rice Kaestner, moved to North Carolina in 1997.
On 30 December 2002, the trust was divided into three share sub-trusts one each for the benefit of Rice‘s three children, including Kaestner. The sub-trusts were divided into three separate trusts in 2006 by Bernstein for administrative convenience. Plaintiff is the separate share trust formed for the benefit of Kaestner and her three children, all of whom resided in North Carolina during the tax years at issue.
During the tax years at issue, the assets held by plaintiff consisted of various financial investments, and the custodians of those assets were located in Boston, Massachusetts. Documents related to plaintiff such as ownership documents, financial books and records, and legal records were all kept in New York. All of plaintiff‘s tax returns and accountings were prepared in New York.
None of the beneficiaries of plaintiff had an absolute right to any of plaintiff‘s assets or income because distributions could only be made at the discretion of Bernstein, who had broad authority to manage the property held by plaintiff. No distributions were made to beneficiaries in North Carolina, including Kaestner, during the tax years at issue; however, in January 2009, plaintiff loaned $250,000 to Kaestner at Bernstein‘s discretion to enable her to pursue an investment opportunity. This loan was repaid.
The terms of the original trust provided that the trustee was to distribute the trust assets to Kaestner when she reached the age of forty. Before her fortieth birthday on 2 June 2009, Kaestner had conversations with her father and Bernstein about whether she wished to receive the trust assets on that date. Ultimately, she requested to extend the trust, and accordingly, Bernstein transferred the assets of plaintiff into a new trust, the KER Family Trust, in 2009. That transfer occurred after the tax years at issue, and KER Family Trust is not a party to this case.
In managing plaintiff, Bernstein provided Kaestner with accountings of trust assets, and she received legal advice regarding plaintiff from Bernstein and his firm. Kaestner and her husband also met with Bernstein in New York to discuss investment opportunities for the trust and whether Kaestner desired to receive income distribution as set forth in the original trust agreement.
During tax years 2005 through 2008, defendant taxed plaintiff on income accumulated each year, regardless of whether any of that income was distributed to any of the North Carolina beneficiaries. Plaintiff sought a refund of those taxes totaling more than $1.3 million, including $79,634.00 paid for 2005, $106,637.00 paid for 2006, $1,099,660.00 paid for 2007, and $17,241.00 paid for 2008. Defendant denied the refund request on 11 February 2011.
On 21 June 2012, plaintiff filed a complaint in Superior Court, Wake County, alleging that defendant wrongfully denied plaintiff‘s request for a refund because
In accord with
Relevant to this appeal, plaintiff filed a motion for summary judgment on its constitutional claims on 8 July 2014, and defendant filed its own motion for summary judgment on 4 September 2014. In its Opinion and Order on Motions for Summary Judgment, the Business Court observed that when a taxed entity such as plaintiff is not physically present in the taxing state, the taxed entity must “purposefully avail[ ] itself of the benefits of an economic market in the forum state” for the tax to satisfy due process requirements. Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep‘t of Revenue, No. 12 CVS 8740, 2015 WL 1880607, at *4 (N.C. Super. Ct. Wake County (Bus. Ct.) Apr. 23, 2015), aff‘d, ___ N.C. App. ___, 789 S.E.2d 645 (2016) (quoting Quill Corp. v. North Dakota, 504 U.S. 298, 307 (1992)). Determining that plaintiff did not purposefully avail itself of the benefits of the taxing state based solely on the beneficiaries’ residence in North Carolina, the Business Court concluded that the provision of section 105-160.2 allowing taxation of trust income “that is for the benefit of a resident of this State,”
Defendant noticed its appeal to the Court of Appeals on 22 May 2015. Before that court, defendant challenged the substantive conclusions of the Business Court that taxation of the trust based solely on the residency of the beneficiaries violated both the Due Process and Commerce Clauses as applied to plaintiff. Kaestner 1992 Family Tr. v. N.C. Dep‘t of Revenue, ___ N.C. App. ___, 789 S.E.2d 645, 647-48 (2016). Like the Business Court, the Court of Appeals also reasoned from the United States Supreme Court‘s guidance that “[t]he Due Process Clause requires [(1)] some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax, and [(2)] that the income attributed to the State for tax purposes must be rationally related to values connected with the taxing State.” Id. at 649 (quoting Quill, 504 U.S. at 306). Noting that a trust has a separate legal existence for the purpose of income taxes pursuant to Anderson v. Wilson, 289 U.S. 20, 27 (1933), Kaestner 1992 Family Tr., ___ N.C. App. at ___, 789 S.E.2d at 650, the Court of Appeals held that the connection between North Carolina and the trust based solely on the residence of the beneficiaries was insufficient to satisfy due process requirements, id. at 651.
On appeal to this Court from the decision of the Court of Appeals, defendant continues to argue that plaintiff had minimum contacts with the State of North Carolina sufficient to satisfy due process based on the presence of the beneficiaries in the state. Defendant also argues that plaintiff had sufficient minimum contacts with North Carolina through certain acts of the trustee whereby plaintiff benefitted from “the ordered society maintained by taxation in North Carolina.” We disagree.
“Our standard of review of an appeal from summary judgment is de novo.” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (citing Forbis v. Neal, 361 N.C. 519, 523-24, 649 S.E.2d 382, 385 (2007)). “Under the de novo standard of review, the [Court] ‘consider[s] the matter anew[ ] and freely [substitutes] its own judgment for’ [that of the lower court].” Midrex Techs., Inc. v. N.C. Dep‘t of Revenue, 369 N.C. 250, 257, 794 S.E.2d 785, 791 (2016) (quoting N.C. Dep‘t of Env‘t & Nat. Res. v. Carroll, 358 N.C. 649, 660, 599 S.E.2d 888, 895 (2004)). On a motion for summary judgment, “[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.”
The relevant provision of section 105-160.2 has remained substantively unchanged since the tax years at issue and states that income tax on an estate or trust “is computed on the amount of the taxable income of the estate or trust that is for the benefit of a resident of this State.”
In considering an as-applied challenge to the constitutionality of a statute, we look to whether the statute is constitutional in the limited context of the facts of the case before us. Then, as with any constitutional challenge, “[i]f there is a conflict between a statute and the Constitution, this Court must determine the rights and liabilities or duties of the litigants before it in accordance with the Constitution, because the Constitution is the superior rule of law in that situation.” Adams v. N.C. Dep‘t of Nat. & Econ. Res., 295 N.C. 683, 690, 249 S.E.2d 402, 406 (1978) (quoting Nicholson v. State Educ. Assistance Auth., 275 N.C. 439, 447, 168 S.E.2d 401, 406 (1969)). The Fourteenth Amendment directs that no State shall “deprive any person of life, liberty, or property, without due process of law.”
When applied to taxation, “[t]he Due Process Clause ‘requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’ ” Quill, 504 U.S. at 306 (quoting Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954)). Due process also requires that “the ‘income attributed to the State for tax purposes must be rationally related to values connected with the taxing State,’ ” id. at 306 (quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273 (1978)); however, in this case we are concerned only with the first requirement. This “minimum connection,” which is more commonly referred to as “minimum contacts,” see id. at 307 (citing Int‘l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)), exists when the taxed entity “purposefully avails itself of the benefits of an economic market” in the taxing state “even if it has no physical presence in the State,” id. at 307 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985)). The Court in Quill Corporation therefore declared: “[T]o the extent that our decisions have indicated that the Due Process Clause requires physical presence in a State” for imposition and collection of a tax, “we overrule those holdings as superseded by developments in the law of due process.” Id. at 308. Applying that standard, the Court went on to hold that the plaintiff in Quill Corporation “purposefully directed its activities at North Dakota residents, that the magnitude of those contacts [was] more than sufficient for due process purposes, and that the use tax [was] related to the benefits Quill receive[d] from access to the State,” id. at 308, when the plaintiff generated revenue of almost $1 million annually from selling office equipment and supplies to approximately 3,000 customers in North Dakota even though all merchandise was delivered from out of state by mail or common carriers, id. at 302.
We have similarly determined that a finding of minimum contacts sufficient to satisfy due process “will vary with the quality and nature of the [party‘s] activity, but it is essential in each case that there be some act by which the [party] purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Skinner v. Preferred Credit, 361 N.C. 114, 123, 638 S.E.2d 203, 210-11 (2006) (quoting Chadbourn, Inc. v. Katz, 285 N.C. 700, 705, 208 S.E.2d 676, 679 (1974)). In light of Quill Corporation and our understanding of minimum contacts analysis, we therefore consider defendant‘s first argument in terms of whether plaintiff can be said to have minimum contacts with North Carolina based on the presence of its beneficiaries in our State.
The Supreme Court has observed that even though a “trust is an abstraction . . . . the law has seen fit to deal with this abstraction for income tax purposes as a separate existence, making its own return under the hand of the fiduciary and claiming and receiving its own appropriate deductions.” Anderson, 289 U.S. at 27. The Internal Revenue Code imposes a separate tax on the income of trusts, see
That plaintiff and its North Carolina beneficiaries have legally separate, taxable existences is critical to the outcome here because a taxed entity‘s minimum contacts with the taxing state cannot be established by a third party‘s minimum contacts with the taxing state. See Walden v. Fiore, ___ U.S. ___, ___, 134 S. Ct. 1115, 1122 (2014) (stating that “unilateral activity of another party or a third person is not an appropriate consideration when determining whether a defendant has sufficient contacts with a forum State” (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 417 (1984))); Hanson v. Denckla, 357 U.S. 235, 253 (1958) (“The unilateral activity of those who claim some relationship with a nonresident [party] cannot satisfy the requirement of contact with the forum State.“). Here it was plaintiff‘s beneficiaries, not plaintiff, who reaped the benefits and protections of North Carolina‘s laws by residing here. Because plaintiff and plaintiff‘s beneficiaries are separate legal entities, due process was not satisfied solely from the beneficiaries’ contacts with North Carolina. Defendant challenges this conclusion by citing to two decisions in which foreign jurisdictions allegedly reached the opposite result. The Supreme Court of Connecticut held that taxation of an inter vivos trust did not violate due process because the beneficiary of the trust was a Connecticut domiciliary. Chase Manhattan Bank v. Gavin, 249 Conn. 172, 204, 733 A.2d 782, 802, cert. denied, 528 U.S. 965 (1999). Describing the domicile of the beneficiary as the “critical link,” the Court in Gavin went on to reason that the beneficiary “enjoyed all of the protections and benefits afforded to other domiciliaries. Her right to the eventual receipt and enjoyment of the accumulated income was, and so long as she is such a domiciliary will continue to be, protected by the laws of the state.” Id. at 204. Therefore, the Court concluded in Gavin:
[J]ust as the state may tax the undistributed income of a trust based on the presence of the trustee in the state because it gives the trustee the protection and benefits of its laws; it may tax the same income based on the domicile of the sole noncontingent beneficiary because it gives her the same protections and benefits.
Id. at 205. Defendant also cites to a decision of the Supreme Court of California for the similar proposition that a “beneficiary‘s state of residence may properly tax the trust on income which is payable in the future to the beneficiary, although it is actually retained by the trust, since that state renders to the beneficiary that protection incident to his eventual enjoyment of such accumulated income.” McCulloch v. Franchise Tax Bd., 61 Cal. 2d 186, 196, 390 P.2d 412, 419 (1964) (emphasis omitted). We do not find either Gavin or McCulloch persuasive in deciding the present case. The Court in Gavin erroneously failed to consider that a trust has a legal existence apart from the beneficiary and that, consequently, for taxation to satisfy due process pursuant to Quill, the trust itself must have “some definite link, some minimum connection” with the taxing state by “purposefully avail[ing] itself of the benefits of an economic market” in that state. Quill, 504 U.S. at 306-07. Furthermore, both the
In contrast to Gavin, several other jurisdictions have applied reasoning similar to our analysis here in the context of deciding whether taxation of a given trust violated due process. See Linn v. Dep‘t of Revenue, 2013 IL App (4th) 121055, ¶ 33, 2 N.E.3d 1203, 1211 (2013) (applying Quill and holding that there was insufficient contact between Illinois and the taxed trust to satisfy due process when the trust, inter alia, “had nothing in and sought nothing from Illinois” and conducted all of its business in Texas), appeal dismissed, 22 N.E.3d 1165 (2014); Fielding v. Comm‘r of Revenue, File Nos. 8911–R, 8912–R, 8913–R, 8914–R, 2017 WL 2484593, at *19-20 (Minn. T.C. May 31, 2017) (deciding that taxation of an inter vivos trust based solely on the in-state domicile of the grantor at the time the trust became irrevocable violated due process); Residuary Tr. A v. Director, Div. of Taxation, 27 N.J. Tax 68, 72-73, 78 (2013) (holding that neither the New Jersey domicile of a deceased testator nor the New Jersey business interests of several corporations in which the testamentary trust held stock justified New Jersey‘s taxation of “undistributed income from sources outside New Jersey” pursuant to the due process minimum contacts standard), aff‘d per curiam, 28 N.J. Tax 541 (2015); T. Ryan Legg Irrevocable Tr. v. Testa, 149 Ohio St. 3d 376, 2016-Ohio-8418, 75 N.E.3d 184, at ¶ 68 (2016) (applying Quill and holding that a tax assessment by Ohio against a Delaware trust did not violate due process when the trust was created by an Ohio resident to dispose of his interest in a corporation that “conducted business in significant part in Ohio” and the settlor‘s “Ohio contacts [were] still material for constitutional purposes“), cert. denied, 138 S. Ct. 222 (2017).
McCulloch, on the other hand, was decided before Quill Corporation, and therefore has a limited ability to inform our application of the Court‘s due process analysis in Quill. Moreover, we find McCulloch to be factually distinguished from the present case because the taxed entity in that case was both a beneficiary and a trustee of the trust and also resided in the taxing jurisdiction. Indeed, in holding that the taxes at issue did not violate due process, the Court in McCulloch particularly relied on the fact that the trustee was a domiciliary of the taxing jurisdiction. See McCulloch, 61 Cal. 2d at 194. However, that circumstance is not present in this case.
As an alternative to its argument that due process was satisfied based on the North Carolina residence of the beneficiaries, defendant also presents the theory that taxation satisfied due process here because plaintiff “reached out to North Carolina by purposefully taking on a long-term relationship with the trust‘s beneficiaries, even though the trustees . . . never entered the state.” In support, defendant notes that Bernstein restructured the original trust for Kaestner‘s benefit, regularly communicated with her about management of plaintiff, and directed a loan to Kaestner from plaintiff‘s assets—all actions that, according to defendant, indicated that plaintiff would have a continuing relationship with Kaestner while she was in North Carolina.
This argument stems from misapprehension of both the facts and law relevant to this case. The undisputed evidence in the record shows that contact between Bernstein and Kaestner regarding administration of the trust was infrequent—consisting of only two meetings during the tax years in question, both of which occurred in New York. Any connection between plaintiff and North Carolina based on the loan is also irrelevant given that the loan was issued in January 2009, after the tax years at issue. Additionally, the United States Supreme Court has directed that ” ‘minimum contacts’ analysis
For taxation of a foreign trust to satisfy the due process guarantee of the Fourteenth Amendment and the similar pledge in Article I, Section 19 of our state constitution, the trust must have some minimum contacts with the State of North Carolina such that the trust enjoys the benefits and protections of the State. When, as here, the income of a foreign trust is subject to taxation solely based on its beneficiaries’ availing themselves of the benefits of our economy and the protections afforded by our laws, those guarantees are violated. Therefore, we hold that
AFFIRMED.
KAESTNER 1992 FAMILY TR. V. N.C. DEP‘T OF REVENUE
Justice ERVIN dissenting.
As the majority correctly indicates, the proper resolution of this case hinges upon the extent, if any, to which the taxpayer had sufficient minimum contacts with North Carolina to satisfy federal due process requirements. Although we are required to make what I believe to be a close call in this case, I feel compelled to conclude, after careful scrutiny of the record in light of the applicable relevant legal standard, that taxpayer “purposefully avail[ed] itself of the benefits of an economic market” in North Carolina despite having “no physical presence in the State.” Quill Corp. v. North Dakota, 504 U.S. 298, 307 (1992) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985)). As a result, I respectfully dissent from my colleagues’ decision.
According to the undisputed facts contained in the record as identified by the trial court, Joseph Lee Rice, III, established the Rice Family 1992 Trust for the benefit of his children in 1992. The Family Trust was created in New York, with the trust instrument providing that the Family Trust was to be governed by New York law. In 2005, David Bernstein, a resident of Connecticut, was appointed trustee of the Family Trust and continued to act in that capacity throughout the time period at issue in this case. In 2006, Mr. Bernstein, physically divided the Family Trust into three trusts, one of which, plaintiff Kimberly Rice Kaestner 1992 Family Trust, was intended to benefit Kimberly Rice Kaestner and her three children, “all of whom were residents and domiciliaries of North Carolina in the tax years at issue.” Mr. Bernstein served as the trustee of the Kaestner Trust following the division of the Family Trust into its three constituent parts.
Throughout the entire interval from 2005 through 2008, which are the tax years at issue in this case, the documents related to the Kaestner Trust were kept in New York, while the custodian of the Kaestner Trust‘s assets was located in Boston, Massachusetts. No distributions were made to any beneficiary of the Kaestner Trust during the 2005 through 2008 tax years. During the period from 2005 through 2008, Mr. Bernstein communicated with Ms. Kaestner regarding the Kaestner Trust and provided her with accountings relating to the Kaestner Trust covering the periods from 22 December 2005 through 31 December 2006 and 23 June 2006 through 8 October 2009. In addition, Mr. Bernstein and the law firm with which he was affiliated provided Ms. Kaestner with legal advice regarding matters relating to the Kaestner Trust.
As the entire Court appears to agree, the resolution of this case hinges upon a proper understanding of the decision of the United States Supreme Court in Quill, which involved
According to the United States Supreme Court, “[t]he 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.’ ”1 Id. at 306 (first quoting Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954); then quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273 (1978)). As the United States Supreme Court noted, it has “abandoned more formalistic tests that focused on [an entity‘s] ‘presence’ within a State in favor of a more flexible inquiry into . . . [an entity‘s] contacts with the forum.” Id. at 307,
Id. at 307 (citing, inter alia, Int‘l Shoe Co. v. Washington, 326 U.S. 310 (1945)). “Applying these principles, we have held that if a foreign [entity] purposefully avails itself of the benefits of an economic market in the forum State, it may subject itself to the State‘s” collection of taxes “even if it has no physical presence in the State.” Id. at 307 (citing Burger King Corp., 471 U.S. 462). As a result, given that Quill had “purposefully directed its activities at North Dakota residents,” its contacts with North Dakota were “more than sufficient for due process purposes.” Id. at 308.
The parties have spent considerable time and effort debating the extent, if any, to which the fact that the beneficiaries of the Kaestner Trust resided in North Carolina during the relevant tax years has any bearing on the required due process analysis. In reaching the conclusion that the residence of the beneficiaries has no bearing upon the proper resolution of this case, my colleagues have deemed Chase Manhattan Bank v. Gavin, 249 Conn. 172, 733 A.2d 782, cert. denied, 528 U.S. 965 (1999), and McCulloch v. Franchise Tax Board, 61 Cal. 2d 186, 390 P.2d 412 (1964), to be essentially irrelevant. I am not inclined to completely disregard either of those decisions, which, to the best of my knowledge, appear to be the only cases decided by state courts of last resort to address the question that is before us in this case, while recognizing that there are distinguishing features which may serve to render them somewhat less persuasive than they might otherwise be.
Admittedly, the assertion of taxing authority over the inter vivos trust at issue in Gavin arose from a situation in which “the settlor of the trust was a Connecticut domiciliary when the trust was established and the beneficiary is a Connecticut domiciliary.” Gavin, 249 Conn. at 183. However, in upholding the taxability of the undistributed income held in an inter vivos trust, the Connecticut Supreme Court specifically stated that, “just as the state may tax the undistributed income of a trust based on
I am loath to completely disregard McCulloch for similar reasons. Although the beneficiary of the trust at issue in McCulloch also served as one of the trustees, the California Supreme Court‘s analysis in that case clearly relies upon the status of the person in question as a beneficiary rather than upon his status as a trustee, with this fact being evidenced by the California Supreme Court‘s statement that “the beneficiary‘s state of residence may properly tax the trust on income which is payable in the future to the beneficiary, although it is actually retained by the trust, since that state renders to the beneficiary that protection incident to his eventual enjoyment of such accumulated income.” McCulloch, 61 Cal. 2d at 196 (emphasis omitted). Similarly, while McCulloch antedates Quill and Burger King, the logic utilized by the California Supreme Court appears to me to rest upon the same considerations that underlie the United States Supreme Court‘s modern due process jurisprudence. For example, the California Supreme Court states that “[t]he tax imposed by California upon the beneficiary is constitutionally supported by a sufficient connection with, and protection afforded to, plaintiff as such beneficiary.” Id. at 196. As a result, I am unable to agree with my colleagues’ determination that neither Gavin nor McCulloch has any bearing upon the proper resolution of this case and am inclined to be persuaded by their logic to believe that, while not dispositive, the presence of the beneficiaries of the Kaestner Trust in North Carolina has some bearing on the proper performance of the required due process analysis.
I also cannot concur in the argument adopted by the Court of Appeals to the effect that the United States Supreme Court has already made our decision for us in Brooke v. City of Norfolk, 277 U.S. 27 (1928). Although Brooke has not been overruled, it antedates Quill and Burger King and rests upon the sort of formalistic, presence-focused approach that the United States Supreme Court rejected in those cases in favor of a less rigid “minimum connections” approach. See Quill, 504 U.S. 298; Burger King, 471 U.S. 462. In addition, Brooke involved an attempt by one state to tax a trust corpus held in another state, which is a very different undertaking than an attempt to tax the undistributed income of a non-North Carolina trust that is held for the benefit of a North Carolina resident.2 The same logic renders the Kaestner Trust‘s reliance upon the decision of the United States Supreme Court in Safe Deposit & Trust Co. of Baltimore v. Commonwealth of Virginia, 280 U.S. 83 (1929), which involved an attempt to tax the corpus, rather than the undistributed income, of a non-jurisdictional trust based upon the existence of a resident beneficiary that the Court rejected on the basis of a pre-Quill method of analysis, unpersuasive. As a result, neither of these cases supports, much less compels, a decision in the Kaestner Trust‘s favor. Instead, my review of the decisions cited by both parties compels me to conclude that the only way to properly resolve this case involves reliance upon a very fact-specific analysis of the extent,
Id. at 307, with this analysis deeming the presence of the beneficiary in North Carolina to be relevant, but not dispositive.
As the Supreme Court explained in Burger King,
it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor‘s efforts are ‘purposefully directed’ toward residents of another State, we have consistently rejected the notion that an absence of physical contact can defeat personal jurisdiction there.
471 U.S. at 476. Although the assets contained in the Kaestner Trust were held in Boston, and the relevant documents were held in New York and although the trustee worked in New York and resided in Connecticut during the tax years at issue in this case, “business [was] transacted . . . by mail and wire communications across state lines,” including those of North Carolina. See id. at 476. Among other things, Ms. Kaestner was known to be a resident of North Carolina at the time that the Kaestner Trust was created for her benefit. In addition, the trustee transmitted information to Ms. Kaestner, provided advice to Ms. Kaestner, and communicated with Ms. Kaestner in other ways with full knowledge of the fact that she resided in North Carolina. The Kaestner Trust could not have successfully carried out these functions in the absence of the benefits that North Carolina provided to Ms. Kaestner during the time that she lived here. As a result, I am unable to conclude, given the applicable standard of review, that the Kaestner Trust lacked sufficient contacts with North Carolina to permit the State to tax the undistributed income held by the Kaestner Trust for Ms. Kaestner‘s benefit. Therefore, I see no due process violation. As a result, for all of these reasons, I respectfully dissent from my colleagues’ decision to affirm the Court of Appeals’ decision.