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Minnesota Tax Court holds definition of ‘resident trust’ unconstitutional as applied to inter vivos trusts

On May 31, 2017, the Minnesota Tax Court overturned as unconstitutional the taxation of certain trusts as Minnesota “resident trusts” and held that application of the statutory definition of “resident trust” to inter vivos trusts formed after 1995 violated the Due Process Clauses of the Minnesota and U.S. Constitutions as applied to the trusts at issue.1 The Court determined that the Minnesota domicile of the grantor at the time the trust became irrevocable was not constitutionally sufficient to allow Minnesota to permanently classify the trust as a Minnesota resident trust and to tax the inter vivos trusts’ investment income as Minnesota source income.

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