Various changes in local, state, and federal tax laws are taking effect this year. Some of the tax legislation has been in the making for years, while others are still under consideration.
As for North Carolina, residents and businesses living and operating in the state have several state tax laws that may be of significance to them.
Scotus Considering State Tax Nexus for Out-of-State Trust Beneficiaries
In 2018, the United States Supreme Court ruled in South Dakota v. Wayfair with a 5-4 majority that states have the right to tax products or services provided by out-of-state merchants.
This ruling means that the merchant doesn’t need to have a physical presence in the state for their goods or services to be taxed, namely mail order and Internet sales transactions.
The SCOTUS ruling in favor of the state in the South Dakota v. Wayfair case eradicated National Bellas Hess v. Illinois 386 U.S. 753 (1967) which prevented states from enforcing a “state tax nexus” on out-of-state vendors.
What does this have to do with out-of-state trust beneficiaries?
In January of this year, SCOTUS officially announced it would hear the case of Kaestner 1992 Family Trust v North Carolina, which is another state tax nexus case.
Unlike the South Dakota v. Wayfair case, this case involves whether or not a state has the right to tax trusts where the beneficiary lives in that state, but the trust itself was created in and governed by another state.
Additionally, the documents for the trust, its financial records, legal records, and books were handled in another state as well.
According to North Carolina tax law, “The tax is computed on the amount of the taxable income of the estate or trust that is for the benefit of a resident of this State.”
Further, the North Carolina Department of Revenue requires that the statute application be based on the “beneficiary’s state of residence on the last day of the taxable year of the trust.”
Nevertheless, the North Carolina Supreme Court ruled that an in-state beneficiary wasn’t grounds enough for the North Carolina Department of Revenue to require taxes be paid on the trust.
This ruling has led to it being appealed to SCOTUS.
Why This Might Be of Interest to You
Since trusts are one of the most common estate planning instruments, allowing them to be taxed solely based upon an in-state beneficiary could very well lead to some critical consequences.
So far, nine states have considered a state tax nexus involving trusts, with four (California, Connecticut, Missouri, and Illinois) agreeing with it and five (New York, New Jersey, Michigan, Minnesota, and North Carolina) in disagreement.
If the outcome goes in favor of Kaestner 1992 Family Trust, it could significantly affect other state tax laws, including reevaluating the Wayfair tax nexus ruling.
The Negative Effects of Trump’s TCJA Will Be Realized
The 2019 tax season isn’t yet three weeks in and even those who were once the staunchest of MAGA supporters are turning on Trump.
Many of those who were studious and thus turned their tax returns in on January 28 were dismayed by what they discovered.
It turns out that TCJA 2017 is far from being a “relief” or a “break” for nearly 30 million Americans.
Many early filers are reporting they either received much less than the previous tax season or, worse yet, owe the IRS money.
What should North Carolinians expect in light of these developments?
If you didn’t prepare your withholdings according to the IRS’s new withholding table, then expect to be among the 21 percent of taxpayers who get back much less or even owe the IRS this year.
If indeed you find out you do owe the IRS, it doesn’t hurt to hire an expert North Carolina tax defense attorney to assist you.
New North Carolina Tax Breaks Finally Going Into Effect in 2019
Some readers may have forgotten by now about the 2013 North Carolina Tax overhaul, but much of it will be implemented in 2019.
But Democratic pundits are more than sceptical that dropping the personal income tax rate from 5.499 percent to 5.25 percent will do much for North Carolinians.
This assumption holds especially true considering the Republican GOP, true to form, killed vital state tax credits and cut major funding to Medicare and Medicaid in exchange for that meager reduction.
Additionally, the maximum amount of money you must make annually before you’re required to pay state taxes will rise from $17,000 to $20,000 for married couples who file jointly, and for single filers, it will rise from $8,750 to $10,000.
And, of course, large corporate entities will see the biggest margin in cuts this tax year, with their taxes dropping from three percent to 2.5 percent.