The American chemist and one-time Pennsylvania resident Robert L. McNeil Jr. amassed his personal fortune primarily through the development and mass commercialization of the pain reliever Tylenol. The Pennsylvania Commonwealth Court’s holding in McNeil v. Commonwealth, Pa. Comm. Court, Nos. 651 F.R. 2010, 173 F.R. 2011 (May 24, 2013), a case involving trusts designed to preserve and protect a portion of McNeil’s fortune, may serve as an elixir to eliminate the pain of the imposition of the Pennsylvania personal income tax (PIT) on certain Pennsylvania resident trusts and most certainly will cause the Pennsylvania Department of Revenue more than its fair share of headaches.
The Pennsylvania statute and the accompanying regulations subject the worldwide income of Pennsylvania resident trusts to a flat 3.07 percent PIT. The statute defines a resident trust as any trust, inter vivos or testamentary, that was created by a Pennsylvania resident or Pennsylvania resident decedent. The regulations further state that the residence of the trust’s fiduciary and beneficiaries is immaterial to the question of taxation. The residency of the trust’s settlor (i.e., grantor) is the single controlling factor in the imposition of the PIT.
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