Their Reasons:
Below is a summary of the debate that ensued between the two professors:
Byrnes: The North Carolina Supreme Court was absolutely right on this one—the location of a trust is what should determine when a state can tax the trust. It would be an entirely different story if the beneficiary who lived in North Carolina had actually received some trust income from the trust, which was formed in New York. That trust income clearly would have been subject to state-level income taxes, but at the trust level itself? No.
Bloink: Overturning North Carolina's law would be the right move in this case, and to do otherwise would create yet another option to allow the super-rich to avoid taxes. Trusts serve any number of completely valid purposes, but shouldn't serve as tax shelters for the wealthy. So long as a trust has strong contacts to the state itself, the state should be able to tax those funds.
Byrnes: The Court is opening the door to chaos if they uphold the North Carolina law. A trust can be formed in one state, and have beneficiaries in any number of states—and yes, it makes sense that when those beneficiaries receive income from the trust, they get taxed on that income. But when the funds stay within the trust…which doesn't even "live" in that state…the state gets to tax that trust just because a beneficiary lives in the state? That just doesn't make any sense.
Bloink: Except it does make sense. These wealthy taxpayers don't need the funds in the trust, and billions of dollars worth of assets move through trusts every single year. Not allowing a state to impose their own taxes on those trusts when a trust beneficiary chooses to reside in the state would create a huge inequality between state residents, and a completely unwarranted motivation for clients to flee to "tax-friendly" states to set up their trusts, while continuing to reside elsewhere.
Byrnes: People move all the time—look at the beneficiary in this case, she moved from New York to North Carolina and now lives in California. What if she had bought stock while living in New York and sold it once she moved to California? Did North Carolina get to tax the appreciation on that stock while she held it? No, of course not. The state could only have taxed the proceeds once the taxpayer received the actual income.
Bloink: A trust situation is different, trusts provide a powerful strategy for avoiding taxes entirely, and that avoidance potential justifies looking to significant contacts that the eventual beneficiary has with the state that wants to impose taxes. What if the beneficiary here had lived in North Carolina all her life, set up the trust in New York, and when she wanted to take a distribution from the trust down the line, moved to Florida for a year to avoid any state-level taxes? That's a significant loophole, and these wealthy taxpayers have the resources necessary to take advantage and avoid state-level taxes for decades.
Robert Bloink and William H. Byrnes 
Byrnes 
Bloink 
