Opinion
No. 36037.
February 11, 1946.
TAXATION.
Under statute, tax on income from testamentary trust, which was distributed annually to a large number of beneficiaries, only a few of whom resided in the state, was required to be imposed on the beneficiaries, and not on the trustees (Laws 1924, c. 132, sec. 14(2) (d), as amended by Laws 1940, c. 123, sec. 2(e); Code 1942, secs. 9220 et seq. 9241)
APPEAL from the chancery court of Hinds county, HON. V.J. STRICKER, Chancellor.
Greek L. Rice, Attorney General, by W.B. Fontaine, Assistant Attorney General, for appellant.
A trust estate is liable for income taxes.
Tri-State Transit Co. of Louisiana v. Stone, 196 Miss. 23, 16 So.2d 782; Middlekauff v. Galloway, 163 Or. 671, 99 P.2d 24; enabling acts of Ch. 132, Laws of 1924, Ch. 120, Laws of 1934; Sec. 4, Ch. 132, Laws of 1924, Sec. 5027, Code of 1930; Sec. 3, Ch. 120, Laws of 1934, Ch. 115, Laws of 1938, Ch. 111 Laws of 1940, Ch. 124, Laws of 1942, Sec. 9222, Code of 1942; Sec. 5, Ch. 132, Laws of 1924, Sec. 5028, Code of 1930, Sec. 4, Ch. 120, Laws of 1934, Sec. 9224 Code of 1942; Sec. 14 (2), (d), (3), Ch. 132, Laws of 1924, Sec. 5036 (2), (d), (3), Code of 1930 Sec. 10 (2), (e), (3), Ch. 120, Laws of 1934, Sec. 2, Ch. 116, Laws of 1938, and as amended by Ch. 123, Laws of 1940; Sec. 15 (4), (5), Ch. 132, Laws of 1924, Sec. 5037, Code of 1930, Sec. 11 Ch. 120, Laws of 1934, Sec. 3, Ch. 151, Laws of 1936 Sec. 9231, Code of 1942; Sec. 17, Ch. 132, Laws of 1924, Sec. 5039, Code of 1930, Sec. 13, Ch. 120, Laws of 1934, Sec. 9235, Code of 1942; Sec. 21, Ch. 132, Laws of 1924, Sec. 5043, Code of 1930, Sec. 17, Ch. 120, Laws of 1934, Sec. 9239, Code of 1942; Sec. 33, Ch. 132, Laws of 1924, Sec. 5054, Code of 1930, Sec. 27, Ch. 120, Laws of 1934, Sec. 9249, Code of 1942.
Under item 5 of the last will and testament of W.H. Tribette, deceased, the trustees were required to pay the amount of all taxes, etc., before distributing the income of the estate, and the sole question for presentation is whether under Section 14 (2) (d) of Chapter 132 of the Laws of 1934, and the amendatory acts, each beneficiary was entitled to the exemption allowed to each individual, that is, up to the enactment of Chapter 123, Laws of 1940. If this is true, then there would be no income tax due from 1924 through 1939, unless and except by reason of the failure of the nonresidents to comply with the law as set out in Section 15, (4) and (5), of Chapter 132 of the Laws of 1924, and the amendatory acts dealing therewith.
Since the enactment of Chapter 123 of the Laws of 1940, there can be no question but that the trust estate is liable for income taxes to the state of Mississippi, as the exemption features existing in the income tax law, as far as each individual beneficiary was concerned, was dropped from the act. Assuming this to be true, this would, of course, leave only for the determination of the court the liability of the trust estate for income taxes for the years 1924 through 1939.
Alexander Alexander, of Jackson, for appellees.
Although fiduciaries which distribute income annually are required to file returns for information only, taxes on such distributed income are not payable by the fiduciary.
Ordway et al. v. Wilcutts, Collector of Internal Revenue, 12 F.2d 105; Clair, Com'r of Int. Rev., v. Barton, 26 F.2d 765; Com'r of Int. Rev. v. Guitar Trust Estate et al., Guitar Trust Estate v. Com'r of Int. Rev., 72 F.2d 544; William E. Scripps et al., 1 N.S.B. of Tax Ap. 491; Barton, Trustee, v. Com'r of Int. Rev., 5 U.S.B. of T.A. 1008; Hener, Trustee, v. Com'r of Int. Rev., 6 U.S.B. of T.A. 190; Brown, Trustee, et al. v. Com'r of Int. Rev., 9 N. S B. of T.A. 521; Allerton v. Com'r of Int. Rev., 13 U.S. B of T.A. 1383; United States v. Arnold, 89 F.2d 246; Clifford v. Helvering, Com'r, 105 F.2d 586; Matcovich v. Anglim, 134 F.2d 834; St. Louis Union Trust Co. v. United States, 3 F. Supp. 650.
The income tax laws of the State of Mississippi recognize the fact that a fiduciary which distributes income annually is not required to pay an income tax. Taxes on such income are payable by the beneficiary.
Argued orally by W.B. Fontaine, for appellant, and by Jas. A. Alexander, for appellee.
The appellees are trustees of a trust estate created by the will of W.H. Tribette, deceased, and this is a proceeding by the Attorney General to collect from them income tax alleged to be due by them as trustees of this estate for the years 1924 to 1942, inclusive. In accordance with a provision of the will by which this trust was created the income therefrom is distributed annually to a large number of beneficiaries, only a few of whom reside in the State of Mississippi. The question for decision is whether the tax on this income should be paid by the trustees, or by the beneficiaries of the trust to whom the income must be distributed.
Chapter 132, Laws 1924, and its amendments now appearing as section 9220 et seq., Code 1942, provides for an annual income tax "upon the entire net income of every . . . trust or estate" and that the tax imposed "shall apply to the income of estates of any kind or property held in trust." Unlike its Federal counterpart, this statute does not expressly provide by whom the tax on income of the character here under consideration shall be paid; that is, whether by the trustee or by the beneficiary. But paragraph (d) of subsection 2, section 14, chapter 132, Laws 1924, provides that "(2) There shall be deducted from the net income of the taxpayers, the following exemptions: . . . (d) In the case of a corporation or association, taxable under this act, there shall be allowed a personal exemption of one thousand dollars. Provided, however, that whenever the entire income from any trust or trust estate is required by the terms of the will or instrument of writing creating the trust, to be distributed annually or at regular period of less than one year, to the beneficiaries, and wherever the trust or trust estate is being administered by the court and the income from said trust or trust estate is to be distributed upon the order of the court, then the same exemptions, deductions and credits shall be allowed such beneficiaries as are by this act allowed to individuals. In any event, however, the fiduciary shall be charged with the duty of making the return for his trust or trust estate."
This proviso assumes that the income of a trust estate that is distributed annually to the beneficiaries thereof, shall be taxed to the beneficiaries and not the trustee and provides for the allowance of exemptions, deductions and credits to the beneficiaries. It would be meaningless if the Legislature intended that this tax should be paid by the trustee and it must be given some effect, if possible. The pertinent portion of section 23 of the same statute in which this proviso appears (section 23 of Chapter 132, Laws 1924, now appearing as section 9241, Code 1942) is as follows: "Information at the source — . . . fiduciaries . . . having the control, receipt, custody, disposal or payment, of . . . income, amounting to six hundred dollars or over, paid or payable during any year to any taxpayer shall make complete returns thereof under oath to the commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by the commissioner with the approval of the governor; and unless such income is so reported, the commission may dis-allow such payments as deductions or credits in computing the tax of the payor."
This section, the requirement of which was each year complied with by the appellees, seems to indicate that the assumption in the above proviso is correct, and since to so construe the statute would do no violence to it, and would make effective what is clearly the legislative intent, we have no hesitancy in holding that income of the character here under consideration must be taxed to the beneficiary thereof and not to the trustee.
Paragraph (d), subsection 2, of section 14, chapter 132, Laws 1924, was amended by section 2(e), chapter 123, Laws 1940, so as to read as follows: "In the case of a corporation or association taxable herein, there shall be allowed no specific exemption," leaving out, and therefore repealing, the proviso hereinbefore quoted from the original section.
The effect of the repeal of this proviso is to withdraw the benefit conferred by it on beneficiaries of trust income of this character insofar as that benefit depends on the proviso and its repeal in no way affects the construction of the statute, which as to the question here under consideration means today what is meant when first enacted.
The decree of the court below being in accordance herewith will be affirmed.
Alexander, J., took no part in this decision.