Maguire v. Trefry

Background

A Massachusetts resident was taxed on income she received as the beneficiary of a trust created by the will of a Philadelphia decedent. The trust assets and the trustee, the Girard Trust Company, were in Philadelphia and the trust was administered under Pennsylvania law. Massachusetts applied its income tax to the beneficiary because she lived in the State and received the income there, and the state courts upheld the tax.

Reasoning

The central question was whether Massachusetts violated the Fourteenth Amendment by taxing income that arose from a trust administered in another State. The Court explained that the beneficiary has an equitable right to the income and actually receives and enjoys it in Massachusetts. The opinion relied on the general rule that credits and benefits follow the person who holds them and distinguished prior decisions about taxing tangible property located elsewhere. Because the income was made available to the resident and protected by her state’s laws, the tax did not deny due process.

Real world impact

The decision means states may tax their residents on income paid out from trusts managed in other states when the residents receive and enjoy that income locally. The tax is aimed at the beneficiary’s income as received, not at the trust’s underlying corpus. Residents who collect trust payouts should expect possible state income tax despite out-of-state trustees or assets.

Dissents or concurrances

One Justice, Mr. Justice McReynolds, dissented; the provided text does not include his full reasoning.