Hecht v. Malley

Background

The cases involve trustees of three Massachusetts business trusts — the Hecht Real Estate Trust, the Haymarket Trust, and the Crocker (formerly Wachusett) Association — who paid special excise taxes under the Revenue Acts of 1916 and 1918 and sued for refunds. These trusts hold and manage property through transferable certificates that look like stock certificates. Some trusts are family affairs with limited transfer rules; others run business enterprises and, in one case, the trust agreement was changed so the trustees run the business much like corporate directors.

Reasoning

The Court examined earlier law and decisions and asked whether these unincorporated trusts count as “associations” that the excise tax can reach, and whether the 1916 or 1918 statute governs. It held that the 1916 excise provision applied only to organizations created under a statute and so did not cover non‑statutory Massachusetts trusts. The 1918 Act, however, redefined terms and extended the excise to associations “created or organized” in the United States. The Court concluded these business trusts are associations under the 1918 law and therefore taxable. The Court also said the tax measure — “capital stock” — should be read to mean the net value of the business’s assets (including surplus and undivided profits), not a narrow technical share capital figure.

Real world impact

As a result, trustees of Massachusetts trusts that carry on business can be required to pay the 1918 capital‑stock excise based on the net value of trust assets. Because the 1918 Act was made retroactive, taxes for the year ending June 30, 1919, paid under the 1916 law could not be recovered. The Court affirmed some lower‑court rulings and reversed others, producing mixed outcomes for different tax years.