Dickson v. Lynch

EAGLES, Judge. A trust held for the benefit of a nonresident by a North Carolina trustee is exempted from intangibles tax to the extent that its net income is “distributed or distributable to such nonresident.” G.S. 105-212. Defendant contends that only income actually distributed to the nonresident is exempt from intangibles tax and that plaintiff was subject to intangibles tax for 1981 because there was no distribution of income from the trusts. We do not agree. In determining whether a trust held for the benefit of a nonresident is exempt from intangibles tax by G.S. 105-212, it does not matter whether any income was actually distributed from the trust if trust assets were distributable to the nonresident beneficiary. We hold that “distributable,” as used in G.S. 105-212, means “capable of being distributed.” The Secretary of Revenue’s regulations requiring that income be actually distributed to a nonresident in order to be considered in determining the ratio of intangible property exempt from taxation are in contravention of the statute. See, 17 N.C.A.C. 8.1505(5). These regulations are also inconsistent with the North Carolina Supreme Court’s statement that the purpose of the exemption in G.S. 105-212 is “to dispel any idea that intangibles otherwise exempt would be subject to the intangible personal property tax because a fiduciary domiciled in this State held and controlled such intangibles.” Allen v. Currie, 254 N.C. 636, 643, 119 S.E. 2d 917, 923 (1961). Because plaintiff here was authorized to distribute income to nonresidents, and to no one else, the trusts are clearly exempt from the intangibles tax under the plain language of G.S. 105-212. The trial judge properly concluded that plaintiff was entitled to a refund of the 1981 intangibles tax paid on the trust assets. Affirmed. Judges Hedrick and Braswell concur.