North Carolina Department of Revenue vs. Kimberly Rice Kaestner 1992 Family Trust

On June 21, 2019, the Supreme Court issued a unanimous decision on the state income taxation of trusts. In North Carolina Department of Revenue vs. Kimberley Rice Kaestner 1992 Family Trust, the Court held that the North Carolina law authorizing the State to tax any trust income that “is for the benefit of a state resident” violated the Fourteenth Amendment’s Due Process Clause. Further, the Court noted that “the residence of the Trust beneficiaries in North Carolina alone does not supply the minimum connection necessary to sustain the State’s tax.”

North Carolina was attempting to tax the income of a trust solely because of the presence of in-state beneficiaries in North Carolina. The trust was established in New York and had no physical presence in North Carolina. The trust made no direct investments and held no real property in the State. Outside of the beneficiaries living in the State during the period at question, there was no connection to North Carolina. Further, Kaestner had no right to, and did not receive, any distributions of trust income.

While this narrow opinion decided by the Court is an advancement of taxpayers’ rights, numerous times throughout the opinion, the Court explicitly stated that the holding applies only to the specific facts at question.

On July 2, 2019, the North Carolina Department of Revenue issued an important notice regarding the Kaestner case to provide guidance to taxpayers potentially affected by the ruling. Impacted taxpayers should also note any deadlines for filing amended returns.

Oregon Corporate Activity Tax bill signed into law

Oregon Governor Kate Brown recently signed a bill that creates a new corporate activity tax – the Oregon CAT. The tax will go into effect for tax years beginning on or after January 1, 2020. It is estimated that the new tax will bring in over $1 billion in new revenue per year to support Oregon schools.

The Oregon CAT will apply to essentially all businesses. The new tax will be imposed on sellers, not purchasers, in all industries, unless they are an “excluded person,” which includes governmental entities, certain non-profits, hospitals and long-term care facilities.

Businesses with nexus in Oregon will be subject to the tax which includes a $250 minimum tax, plus 0.57% of a business’ Oregon-sourced commercial activity over $1 million. If a taxpayer’s Oregon-sourced taxable commercial activity does not exceed $1 million, it is not subject to the tax.

The Oregon CAT is similar to the Ohio CAT and Texas Margin Tax, as it incorporates aspects of both of those taxes into its calculations. The Oregon CAT also continues the trend of developments in the area of gross receipts taxes. However, taxpayers should note that, in Oregon, the new tax is in addition to all other taxes or fees imposed by the State.

To learn more about income/franchise tax legislation changes and what to expect for the remainder of 2019, click here to register for our upcoming SALTrends webinar featuring State and Local Tax Director Sara Goldhardt.

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