Q&A with the Pennsylvania Department of Revenue

Will defective grantor trusts be able to claim credits for state taxes paid by the grantor?

Nov 04, 2015
With the assumptions that this question is referring to the “resident credit”’ for taxes paid to other states, § 7314 only grants a resident credit to a resident PA PIT taxpayer against his PA PIT tax liability for an income tax “imposed upon him” by another state, which income is as subject to PA PIT. Grantor trusts are disregarded for federal income tax purposes.  The income of the trust is deemed to be the income of the trust grantor. So, for states that follow a federal base, the trust income is considered income of the grantor and the tax is imposed upon the grantor. 

For PA PIT purposes, we do not disregard grantor trusts (we only disregard revocable trusts). Consequently, the income of a grantor trust is deemed to be the income of the trust, not the grantor. As a result, although the income of a grantor trust may be taxed by PA and another state, the taxpayer is a different party in each jurisdiction. Consequently, the trust is not entitled to claim a resident credit against its PA PIT for income tax of another state that is imposed on and paid by the grantor rather than the trust.

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.