Breaking State Tax News
Supreme Court declines to hear Fielding v. Commissioner of Revenue Case
June 28, 2019
Today the United States Supreme Court issued an order declining to review Bauerly v. Fielding letting stand and opinion by the Minnesota Supreme Court in William Fielding v. Commissioner of Revenue which found the Minnesota definition of "resident trust" to be unconstitutional as applied to the Fielding trusts.
The Minnesota Supreme Court ruling in Fielding v. Comm'r of Revenue, 916 N.W.2d 323, 2018 BL 254447 (Minn. 2018) found that the imposition of Minnesota’s fiduciary income tax, as applied to the four trusts at issue, violated the Due Process Clause of the United States Constitution.
The Fielding case involved four inter vivos trusts created by grantor Reid MacDonald, then a domiciliary of Minnesota. On June 25, 2009, Reid MacDonald created the four trusts at issue and shortly thereafter the trusts were funded with shares of non-voting common stock in Faribault Foods, a Minnesota S-Corporation. MacDonald used a Minnesota attorney to draft the trust agreements. Further, the Minnesota attorney stored the original trust documents in Minnesota.
For the first thirty months of the trusts’ existence, the trusts were considered “grantor type trusts” for Minnesota income tax purposes. On December 31, 2011, grantor Reid MacDonald relinquished his power to substitute assets in the trusts and, therefore, the trusts became irrevocable on that date. Reid MacDonald was a resident of Minnesota at the times when the trusts were created and when they became irrevocable.
A California domiciliary was appointed on January 1, 2012 as the initial trustee for the four trusts. On July 24, 2014, William Fielding, a domiciliary of Texas, became trustee for the four trusts at issue. At no time did any of the four trusts at issue have a trustee who was domiciled in Minnesota.
In the Fielding case, three of the four beneficiaries of the trusts at issue were not residents of Minnesota. One of the trustees was a Minnesota resident through the tax year at issue.
Based on these facts, the Minnesota Supreme Court ruled that “the State lacks sufficient contacts with the trusts to support taxation of the Trusts’ entire income as residents consistent with due process.”