The U.S. Supreme Court recently issued a unanimous decision in North Carolina Dept. of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, ruling that residence in a state is not a sufficient reason to tax an out-of-state trust's undistributed income. Justice Sonia Sotomayer delivered the opinion, explaining the Court's two-step analysis of the case in regards to the 14th Amendment on due process. The judges considered that there must be "some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax" and that the "income attributed to the State for tax purposes must be rationally related to 'values connected with the taxing State.'" In this instance, "the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain ever to receive it."
On September 25, 2017, Governor Brown signed S.B. 813 into law, which, effective January 1, 2018, expands the existing California state voluntary disclosure program to include out-of-state trusts with California beneficiaries and non-resident partners. Such taxpayers will now be eligible to use the voluntary disclosure program to bring non-California trusts into compliance with California state tax laws. In addition, the Franchise Tax Board (FTB) may waive late-filing penalties for certain types of entities and returns under the program.
The Mobile Workforce State Income Tax Simplification Act of 2017, which aims to make a person's wages and other remuneration subject to income tax only in the employee's state of residence and the state where the employee was physically present and performed employment duties for more than 30 calendar days, was passed by the U.S. House of Representatives on June 20, 2017. Employers will not have state income tax withholding or reporting requirements for employees who do not fit these criteria. Certain classes of workers will not be considered employees for the purposes of this bill, including professional athletes and entertainers; film and video production employees; and prominent public figures providing services on a per-event basis. The U.S. Senate Committee on Finance currently has the proposed bill under review. Click here to track its progress.