Greenough v. Tax Assessors of Newport

1947-06-09

Headline: States can tax a resident trustee on his share of an out-of-state trust’s intangible property, upholding Rhode Island’s assessment and allowing resident trustees to be taxed on trust assets kept elsewhere.

Holding: The Court held that a state may constitutionally tax a resident trustee on his proportional interest in out-of-state trust intangibles because the state affords protection and benefits to its resident trustee.

Real World Impact:

Allows states to tax resident trustees on their share of out-of-state trust intangibles.
Treats legal ownership by trustee as taxable even if trust property is located elsewhere.
Could expose trusts to overlapping state tax claims when trustees live in different states.

Topics: state taxation, trusts and estates, resident trustees, intangible property

Summary

Background

The case involved testamentary trustees who managed a trust created by George H. Warren, a New York decedent. The trust’s intangible assets and the evidences of ownership remained in New York. One trustee lived in Rhode Island. Newport assessed a $50 personal property tax against that Rhode Island trustee for one-half of the trust’s corpus (500 shares of stock). The trustees paid the tax and sued to recover it, arguing Rhode Island could not constitutionally tax trust property located and administered in another state.

Reasoning

The Court asked whether the Fourteenth Amendment forbids Rhode Island from taxing a resident trustee on his proportional interest in trust intangibles held out of state. The majority said no. It explained that intangibles have no fixed physical situs and that the legal interest of a trustee is a distinct right. A state of residence gives a trustee benefits and protection (for example, the ability to be sued there and to use local courts). Those connections are a sufficient basis for a proportional ad valorem tax on the resident trustee’s legal interest.

Real world impact

The decision lets states include a resident trustee’s share of out-of-state intangible property in local property tax assessments. The Court noted other states might also claim taxing power, and state law differences will affect how taxes are applied and who ultimately bears them. The ruling affirms that the trustee’s residence, not merely the seat of the trust, can justify taxation.

Dissents or concurrances

Justices Jackson and Rutledge dissented, warning that taxing the trust corpus through the residence of one trustee risks multiple taxation and reaches too far when the trust and assets are administered elsewhere. Justice Frankfurter concurred, emphasizing long-standing state practice of taxing residents on wealth they control.