State Residency and Source Income Factors for State Income Taxation of Irrevocable Non-Grantor Trusts Companion chart to "Incomplete Gift, Non-Grantor Trusts - Not Just for State Income Tax Avoidance" and "Spousal Lifetime Access Non-Grantor Trusts" CLE/article/webinars, compiled by Ed Morrow, J.D., LL.M. (tax), CFP® - permission to reprint with attribution expressly permitted. Any bold or [bracketed comments] are added by author and are not in statute. There are two fundamental bases for taxation of non-grantor trust income: residency and source. States may tax all income of their residents but only source income of non-residents. Excerpts chosen from trust residency statutes focus on taxation of irrevocable non-grantor trusts (grantor trusts are usually ignored as separate taxpayers and thus most states look to the deemed owner's state of residence for income tax purposes, although Pennsylvania has unique rules). Excerpts from source income statutes focus on sale of LLC/LP/closely held corporations (since such sales are likely to be the largest source of avoidable income), and omit common source income provisions such as taxation of ongoing income from partnerships and pass through entities in state, wage income from services performed in state, state lottery winnings or sales of tangible property or real estate in state. Please contact the author with any updates, additions or corrections from your state at
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[email protected], or for future updates, as this will be periodically updated. Any field colored in blue contains a hyperlink directly to the state statute, regulation, case law, articles and/or other instructions or authority.