Brief of Constitutional Law Scholars in North Carolina v. Kaestner

27 Pages Posted: 27 Mar 2019

See all articles by Allan Erbsen

Allan Erbsen

University of Minnesota - Twin Cities - School of Law

Darien Shanske

University of California, Davis - School of Law

Alan B. Morrison

George Washington University - Law School

Date Written: March 1, 2019

Abstract

Nominally, this case is about whether North Carolina may tax a trust’s undistributed net income because the trust’s beneficiary resided in North Carolina during the relevant tax years. But the broader problem is that many states seek to tax trust income based on the local residence of various persons or assets connected to the trust. The existence of multiple triggers for taxation raises a problem of overlapping jurisdiction that the Due Process Clause is ill-suited to address. For example, if a settlor in State W designates a trustee in state X, who holds assets in an account in state Y, for a beneficiary in State Z, four different states might seek to tax the trust’s income and might not provide offsetting credits.

The Due Process Clause, as opposed to the Dormant Commerce Clause, is a poor fit for sorting out this regulatory overlap for at least three reasons.

First, the Court’s due process jurisprudence is designed to identify when a given state may act in isolation, rather than when the overlapping authority of multiple states creates a risk of cumulative burdens.

Second, current Dormant Commerce Clause jurisprudence provides robust tools for addressing the problem of cumulative burdens.

Third, relying on the Dormant Commerce Clause rather than the Due Process Clause would preserve flexibility for Congress to provide comprehensive solutions if it identifies a problem arising from multistate taxation of trust income. In contrast, a ruling on Due Process grounds that North Carolina may not impose the tax at issue here, or that other states may not tax trusts in other circumstances, would tie Congress’s hands in the face of tax avoidance schemes that may undermine reasonable state interests.

Keywords: Taxation of Trusts; Due Process Clause; Dormant Commerce Clause

Suggested Citation

Erbsen, Allan and Shanske, Darien and Morrison, Alan B., Brief of Constitutional Law Scholars in North Carolina v. Kaestner (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3346768 or http://dx.doi.org/10.2139/ssrn.3346768

Allan Erbsen

University of Minnesota - Twin Cities - School of Law ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

Darien Shanske (Contact Author)

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

Alan B. Morrison

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
12
Abstract Views
147
PlumX Metrics