Moye v. Currie

253 N.C. 363 | N.C. | 1960

DenNY, J.

The question for determination on the defendant’s appeal is whether or not a North Carolina resident, who was co-owner' of an established Georgia business and who for business reasons transferred her interest therein as settlor of a living trust to a trustee for her own benefit, is entitled to the deduction allowed by G.S. 105-147 (10) (b), before its repeal by Chapter 1340, Session Laws of 1957, on account of income received by the beneficiary of said trust when such income has already been reported to and taxed by the State of Georgia?

The pertinent portion of former G.S. 105-147(10) (b) and upon which the plaintiff is relying, reads as follows: “Resident individuals having an established business or an investment in real or tangible property in another state or other states may deduct the net income from such business or property but only to the extent that such income is in fact reported for taxation in such other state or states which levies or levy a net income tax.”

The defendant contends that the facts in this case are controlled by the case of Sabine v. Gill, 229 N.C. 599, 51 S.E. 2d 1.

In the Sabine case, James P. Grey, a resident of Mecklenburg County, North Carolina and the father of Mrs. Sabine, owned 93% of a hosiery mill and business located in the City of Bristol, Virginia,' trading under the name, and style of Grey Hosiery Mills, which was' being operated as a partnership by James P. Grey and others residing in the State of Virginia. In his last will and testament, which was probated in Mecklenburg County, North Carolina, Mr. Grey set up a testamentary trust, providing that the hosiery business should be continued after his death by named Virginia trustees and the other partners owning the remaining seven per cent interest in the business. Under the will, Commercial National Bank of Charlotte, North Carolina, as executor and trustee, was made the custodian of all the assets of the estate and empowered to collect, receive and disburse all the funds belonging thereto. In deference to this provision, the Corporation Court of the City of Bristol, in which the will in an ancillary proceeding hadi been probated and under which the executors and trustees had qualified, directed, authorized and empowered the Virginia executors and trustees to remit to the Commercial National Bank of Charlotte, the distributing agent and depository, all the distributable income from the Grey Hosiery Mills business to which the estate of the testator should become entitled. In 1943, the Commercial National Bank of Charlotte paid and distributed to Mrs. Sabine the sum of $40,114.50, that being the portion of the distributable income which Mrs. Sabine was entitled to receive as beneficiary under her father’s will.

Virginia levied a tax on this income and it was paid. North Carolina taxed it and the tax was paid under protest and suit brought for its recovery based on the provisions of G.S. 105-147(10), the pertinent parts of which at that time read as follows: “Resident individuals and domestic corporations having an established business in another state, or investment in property in another state, may dediuct the net income from such business or investment if such business or investment is in a state that levies a tax upon such net income.”

This Court said: “True, there is an established business and an investment in the State of Virginia, but it belongs to the estate and not to the plaintiff or those like situated under the will. The latter, including the plaintiff, are neither legal nor equitable owners. * * * The plaintiff " * * has no such right in the established business or investment from which the revenue is derived and is not so related to it as would justify the Court in ignoring the trusteeship, which not only has the legal title, but the active custody, control and operation of the property and facilities which produced the income which the plaintiff received as a resident of the State.”

In Prentice-Hall (North Carolina State and Local Tax Service, section Tl,645.50), it is said: “Resident guardian is taxable on income received from securities held by Virginia trustee, though Virginia taxes the same income against guardian (citing Guaranty Trust Co. v. Virginia, 59 S.Ct. 1, 305 U.S. 19, 83 L. Ed. 16). Unless trust was created by beneficiary himself with his own funds or 'property, for business or investment, beneficiary of foreign trust is not regarded as having an established place of business or investment in property in another state.” (Emphasis added.) The foregoing statement is based on an opinion rendered by the Attorney General of North Carolina to the Commissioner of Revenue on 5 January 1939, construing this identical statute, which opinion is now on file in the office of the Attorney General.

The construction placed upon the Revenue Act by the Commissioner of Revenue will be given due consideration by the Court, although we have repeatedly held that such construction is not controlling. Cannon v. Maxwell, 205 N.C. 420, 171 S.E. 624; Powell v. Maxwell, 210 N.C. 211, 186 S.E. 326; Valentine v. Gill, 223 N.C. 396, 27 S.E. 2d 2; Bottling Co. v. Shaw, 232 N.C. 307, 59 S.E. 2d 819; Rubber Co. v. Shaw, 244 N.C. 170, 92 S.E. 2d 799; In re Vanderbilt University, 252 N.C. 743, 114 S.E. 2d 655.

In our opinion, the inter vivos trust created by the plaintiff as settlor and in which she retained the right to all the income therefrom, did not defeat her right to the deduction allowable under G.S. 105-147(10) (b). The Moye Trust was created not for the purpose of releasing control of or the interest in the Chemical business, but for the purpose of concentrating the respective family interests in the business to guarantee its continued operation. The plaintiff continued to be the equitable owner of 17%% of the partnership and we hold that she is entitled to recover a refund for the taxes paid under protest in accord with the judgment entered below.

Plaintiff’s Appeal

The plaintiff contends that since the plaintiff was named as co-executor of the estate of J. W. Woolfolk and co-trustee of the testamentary trust, that she is entitled to deduct the income she received from the Woolfolk Trust under the provisions of G.S. 105-147(10) (b).

The plaintiff relies upon the Sabine case to the extent that in the Sabine case one of the reasons assigned why the plaintiff therein was not entitled to recover was because she held neither a legal nor an equitable interest in the testamentary trust, but as co-trustee in the Woolfolk Trust the plaintiff herein holds the legal title to the property in the testamentary trust.

It is true, the plaintiff is a co-trustee along with the Fulton National Bank of Atlanta, Georgia, and they hold in custody the partnership interest of the J. W. Woolfolk estate under the testamentary trust for the purpose of continuing the business of the Woolfolk Chemical Works. The relationship of the plaintiff as a trustee under the testamentary trust is a fiduciary one and does not, in our opinion, give her by reason thereof an established business in another State within the contemplation of the provisions of G.S. 105-147 (10) (b) insofar as the Woolfolk Trust is concerned.

In reply to a request from the Commissioner of Revenue, the Attorney General advised the Commissioner on 3 November 1938 as follows: “ * * * Section 318 (4) of the Revenue Act of 1937 requires resident beneficiaries of a trust to return in this State sums distributed by the trustee during the taxable year. The taxability of such income is not affected by the fact that the State of the trust also lays a tax upon the same income.

“The trust was created by a person other than the taxpayer and the latter does not, within the meaning of section 322(10) of the Act (codified as North Carolina Code 7,880 (140) (10), later as G.S. 105-147 (10)), have a business or investment in the State of the trust.” Biennial Report of the Attorney General of North Carolina, Volume 25, 1938-1940, page 74.

Again on 10 April 1940, the Attorney General was requested by the Commissioner of Revenue to give an opinion whether “sums received by a resident beneficiary from a foreign trust and derived from rents from land in other states are to be included in the gross income of the beneficiary. * * *

“Section 322 (5) provides that ‘resident individuals * * having an established business in another state, or investment or property in another state, may deduct the net income from such business or investment if such business or investment is in a state that levies a tax upon such net income.’ This Section is inapplicable. The business or investment in such case is that of the trustee or trust estate and not that of the beneficiary. See my previous letters of November 3, 1938 and January 5, 1939.” Biennial Report of the Attorney General of North Carolina, Volume 25, 1938-1940, page 127.

Therefore, in our opinion, the ruling of the court below as set forth in the second conclusion of law should be upheld, and it is so ordered.

Affirmed.