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Constitutional limits on state taxation of trusts

Inside Deloitte

In this installment of Inside Deloitte, Michael S. Canfield explores the conceptual basis for state income taxation of trusts and examines some of the trends at the state judicial and legislative level that might shape future constitutional debate.


If a constitutional law professor were looking to fill a course syllabus, he would probably not start with a history of federal jurisprudence on the topic of state taxation of trusts. The paucity of case law from the US Supreme Court and other federal courts on this subject, however, does not mean that constitutional questions regarding state taxation of trusts are sufficiently settled. To the contrary, the lack of clear guidance in this area, combined with a patchwork of state laws that are supported by varying and often conflicting philosophical underpinnings, has created an uncertain environment in which some leading theories of taxation might be, at least in their application, unconstitutional.

Fortunately, the court, on the heels of its landmark Wayfair1 decision, which has resulted in sweeping changes to the state sales tax landscape, agreed to review a decision from the North Carolina Supreme Court—Kimberley Rice Kaestner Family Trust v. North Carolina Department of Revenue—regarding the state income taxation of a trust and related issues under the due process clause of the 14th Amendment of the US Constitution.2

Nonetheless, for various reasons, an enduring lack of clarity in this area is likely even after the court renders its opinion in Kaestner Family Trust. As such, it is worthwhile to explore the conceptual basis for state income taxation of trusts, to examine some of the trends at the state judicial and legislative level that might shape the constitutional debate for years to come, and to preview Kaestner Family Trust—oral arguments for which were held on April 19.

​If you have questions regarding this edition of Inside Deloitte, please contact: 

Michael S. Canfield, senior manager, Deloitte Tax LLP


1 South Dakota v. Wayfair Inc., 138 S. Ct. 2080 (2018).
2 Kimberley Rice Kaestner Family Trust v. N.C. Department of Revenue, 814

S.E.2d 43 (N.C. 2018); U.S. Supreme Court, Docket 18-457, petition for 
certiorari granted Jan. 11, 2019.


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