What is Situs in Law?
In the legal context, situs refers to the location or site of a property for the purposes of determining which jurisdiction’s laws apply. Situs is particularly important when discussing tax law, where it often determines the taxation rate applied to a person based on where they live or where the property they hold is located.
For example, situs may be used when determining whether a property owner should pay taxes in their state of residence or in the state where the property resides . It is also used to determine where a business must pay taxes, as there are many states with no state income tax that business owners may try to avoid paying taxes in through the use of situs.
While situs applications may vary, often they are used in real estate or government law applications. For real estate purposes, especially when dealing with estates broken up with multiple beneficiaries, situs may be used to uniquely identify where personal property exists. In government law, situs can help determine where powers of attorney need to be applied to or where property is owned to determine which local laws and ordinances need to be addressed by the estate.
Property Situs: Real Situs vs Personal Situs
The situs of real property is not the same as the situs of personal property for legal purposes. Real property is considered to be that which is fixed to the ground and therefore immovable. It is classified into different categories, which are based on the use to which the property is devoted. These categories include the following:
As to situs, real property is usually taxed in the location where it is situated. Courts will also apply the law of the location of the real property when disputes over said property arise.
The situs of personal property is the place where it is actually situated at a given moment in time. A person may have two or more places of abode. The residence or domicile of an individual refers to the state in which that person has his or her primary home. The significance of situs with respect to personal property is best illustrated by the examples below:
Situs generally determines what law will apply to a case involving personal property. There are several exceptions to this general rule, such as in matters involving personal estate taxes and some rules of evidence.
Situs in Taxation
Situs in tax law refers to the physical location of a taxpayer’s assets or property, which affects the taxation of those assets or properties. The situs of real property determines which state has the jurisdiction to assess taxes on that property, namely, the state in which the property is located. The situs of tangible personal property similarly determines the state jurisdiction over such property. The situs of intangible property is often found through reference to the domiciles of the parties to a transaction involving the property. The situs of intangible personal property thus can yield different results depending on the domicile of the taxpayer or any secondly relevant party. In all instances, however, situs is used to ascertain which jurisdiction has the right to impose taxes, to determine how and when such taxes are assessed, and therefore to decide how taxpayer will be taxed on its property.
A state has the authority to impose an income tax on its residents in order to generate revenue. Such income taxes are typically imposed on individuals as well as corporations. Whether a state has the authority to impose an income tax on a non-resident of that state, however, depends on the state’s ability to assert sufficient minimum contacts (generally, business activities) with the non-resident. A state may not impose an income tax on a non-resident on income that is either earned from sources outside the state or business conducted outside the state. Engaging in business activities within a state may, however, subject a non-resident to taxation. In particular, business activities and related income tax liability can stem from: 1) owning commercial property or engaging in construction work in the state; or 2) having nexus with a corporation.
Internationally, situs is equally important. Under U.S. international tax rules, U.S. citizens and residents are taxed on their worldwide income, and nonresident aliens are taxed only on their U.S.-source income. These rules recognize the principle of "situs," where income (and hence the jurisdiction imposing tax thereon) is determined based on the location of the source attributable to such income. Whether such income is "sourced" to the U.S. largely depends on the residency status of the taxpayer and the source of the income. For example, the taxable nature of interest income is dependent on where the payer of the income resides, while dividends are sourced to the residence of the corporation. Temporary residence of a taxpayer within the U.S. does not, however, often create nexus for purposes of taxation.
Because tax law frequently utilizes situs principles, the determination of situs is critical to the calculation of tax liabilities and obligations.
Situs and Conflict of Laws
Situs is an important principle that can assist in resolving a conflict of laws. When a court is faced with more than one jurisdictional element in its decision, an example being a relative jurisdictional balance among competing sovereigns, situs can point to a proper jurisdiction. In 1963 the court in White Eagle Oil & Refining Co. v. Texas sought to resolve a conflict of laws arising from a contractual arrangement among Texas, Oklahoma and New Mexico concerning the sale of infringing "smuggled oil." The contractual arrangement was itself a conflict of laws, with each sovereign claiming identity in the oil subject to smuggling. The court relied on a "jurisdictionally dominant situs" in New Mexico to bolster the assignment of sole ownership to New Mexico. The court held, after consideration of writ of error, that New Mexico was the proper situs.
Another example of situs in conflict of laws is City of Houston v. Sutherland in 1922. As in White Eagle, the city of Houston was the center of contractual arrangements between Texas and Louisiana. In City of Houston the city is made the dominant jurisdiction, again directed by the contractual arrangement. Unlike White Eagle, in City of Houston Texas is the politically dominant jurisdiction, albeit without treaty. The treaty was a fallback that the court seized upon to demonstrate that it would not be reasonable that both Texas and Louisiana should be entitled to exercise "political dominion over the same territory and the revenue from its oil." The Houston municipality was the conflict of laws situs in this situation because of the proximity and cooperation of the municipalities of the two sovereigns. As in White, the competing jurisdictions are able to avoid a unified determination of a single conflict of laws.
Situs in Wills, Trusts, and Probate
In the fields of trust and estate law, situs is most easily defined from an administrative perspective. Generally, the situs of any particular trust or estate asset can be described from a functional point of view: where are the assets in question? If an estate or trust includes real estate located in California, and bank accounts located in Florida, for purposes of administrative decisions (e.g., which probate court should the estate be probated in?), the situs of the California real estate would be California and the situs of the bank accounts would be Florida. But a great a deal of complexity arises because the situs of a trust or estate asset for administrative purposes may differ from the situs of that asset in terms of which law applies to its operation and interpretation. For example, if a person dies while holding property in Montana, but that person executed a will in Texas, there may be those that argue that the testamentary disposition should be analyzed under Texas law – depending, of course, on the estate tax consequences of the situation and whether the disposition is clear enough that it would be upheld regardless of jurisdiction. Administratively, too, it may prove a difficulty as to whether there are one or two states with primary jurisdiction, which can result in a stalemate. Another example of how situs can impact trusts and estates is one that commonly arises when assessing whether or not a particular trust, established in a particular state, should be deemed valid, when the parties are located in different states. In such a circumstance, the party challenging the trust will likely argue for the law of his or her state, while the party seeking to enforce the trust will argue for the law of the state that established the trust. Additionally, all states have laws governing estates in probate and, generally speaking, estates that include both real and personal property. If the situs of the real property is located in one state (i.e., a trust or will specifically disposes of or makes allusions to the real property located in this state) and the decedent was domiciled in a different state, any testamentary reference to the real property may be governed by the laws of the state of domicile of the testator, in spite of the actual situs of the real property . A number of states provide that the succession of personal property, whether as personal representative, executor, or successor trustee shall be governed by the law of the state where the real property is located, notwithstanding the domicile of the deceased, but these laws vary broadly among states, with some states not recognizing the principle at all. Given the variety of interpretations that can be applied to situs within trust and estate law, determining the situs of a trust is often really a set of conclusions that are applied situationally to the facts presented and the jurisdictional impacts. For example, although the term "situs" is avoided in the Uniform Principal and Income Act, it has been noted by the law’s authors, the National Conference on Uniform State Laws, that "knowingly giving a beneficiary the benefit of unfettered and unexpected access to the corpus of a trust through application of situs rules is contrary to the intent of almost every drafter whose trust is the subject of the situs question." However, the authors add, "engaging in the situs rule at the time of drafting removes an unintended effect of a situs rule from the list of unintended effects of application of old situs rules." With respect to situs in trust and estate law, the only clear conclusion is that when given a choice, a drafter or creator should clearly identify the governing/controlling jurisdiction and local law that will operate to interpret and apply to any issue, including, but not limited to, whether probate will be required or which state has jurisdiction over the estate when the decedent was domiciled in a different state. Alternatively, drafters or creators may seek to include a "situs changing" clause into the document that allows for reformation, provided, they are not changing the governing jurisdiction to one less favorable to the constituency of the trust or estate (such as decreasing available tax deductions or increasing expenses), to ensure the necessary jurisdiction will be applied, but this should never be used as a subterfuge for the purpose of avoiding estate taxes.
Situs Case Law
As there are Situs rules or principles in most every area of law, it is important to consider some of the more well known situs based legal precedents. In this relatively short list, we will consider the facts of each case as well as a ruling and in some cases, a dissenting opinion. Although a few instances of situs and the law may appear rather archaic by today’s standards, it is important to see how these cases helped shape some of the rules we follow to this day and as such can be valuable for practical scenarios in the future.
White v. Tennant, 103 U.S. 805 (1880) – The court held that the State of New Jersey had jurisdiction to tax a man’s intangible property in the state of New Jersey even though ownership of the property was in the hands of a corporation incorporated in another state. "A corporation is, in contemplation of law, an artificial being, invisible, intangible, and existing only in contemplation of law. Whether it shall be created or not must depend upon the will and the action of the law-making power. When created, it is a distinct entity, invested with the capacity of perpetual succession. It may therefore acquire, hold, administer, and transfer property of all kinds, tangible or intangible, corporeal or incorporeal, and it may exercise franchises or privileges, but at the same time it cannot have any element of sovereignty. It has no political influence, and can exercise no political powers. Indeed, its powers in this respect do not extend beyond the capacity of an individual to act, in which aspect it is very properly said to possess only private rights.
The Pennsylvania Fire Insurance Co. v. Gold Issue Min. & Mill Co., 243 U.S. 93 (1917) – "A non-resident corporation is not subject to taxation outside the state of its domicile merely because it has property or business within the taxing state, unless the business to be taxed is transacted there through a permanent place of business, sometimes commonly known as a local office." In a stinging dissent Justice Brandeis wrote with respect to situs that "mere power to tax is not power to destroy." Few remember this standard from this case. However, it is now used as a standard to argue that despite a mere power to tax or the fact that a particular situs rule may appear to be a plain statement of a rule, the assertion of the right to collect the tax is diabolical, arbitrary, discriminatory and even unconstitutional. What Justice Brandeis was emphasizing in 1917 is still relevant in the courts today and the situs rules of law, in addition to questions of equitable violation must be considered.
Trivitt v. Horgan, 223 Iowa 403, 272 N.W. 554 (1937) – The situs of a chosen domicile for a motor vehicle is the place where the owner has the intention of resting them and not frequently changing locations. When a motor vehicle is registered in another state it cannot be held that the owner has established a positive domicil in that state.
Staats v. Eisenhower, 50 N.J. 228, 234 A.2d 785 (1967) – A key component of the situs doctrine in New Jersey provides for taxation of the property of a nonresident of the state, located in the State, even though the decedent was domiciled elsewhere at death.
Modern Changes and Future Situs Legislation
Emerging trends and future developments in situs law will focus on the increasing role of technology in social and economic affairs, as this will lead to new criteria for determining "location." The growing interconnectedness among states and nations makes a strong case for effectively harmonizing the practice of situs determination by jurisdictions worldwide; otherwise , divergent state practices may result in significant expense and confusion, particularly when multiple jurisdictions have the potential to tax the same connection in the absence of a prevailing consensus. Even with this likely as a future possibility, however, the basic concepts of situs law will remain constant. The principles originally established millennia ago will continue to guide its development in the years to come.
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