State and Local Taxation – Holderness — Fall 2016
8-24-16
Handout – State Taxes by Percentage of Total Collections 2012
Big picture
How do constitutional laws shape SALT?
SCOTUS cases drive much of the changes in SALT
Maryland v. Wynne
Wynnes were being doubly taxed by Maryland from income earned out of state
Equal protection concerns as non-residents/residents earning income elsewhere being treated differently
Difference between income tax vs gross receipts tax
Concern that commerce clause says that Maryland cannot do this because it discourages interstate commerce
States should retain their sovereignty and ability to tax how they see fit
Due process clause
Says negative dormant commerce clause doesn’t exist
Policies of Taxation
Create revenue
Provide social services
Want taxes to be imposed on those actually using the services
Social decision-making
Ex. High taxes on cigarettes
Encourage investment
Complexity contributes to compliance difficulties
Ability to actually collect
Horizontal v. Vertical Equity
Horizontal equity means taxing similarly situated taxpayers equally
Vertical equity means taxing dissimilarly situated taxpayers differently
8-25-16
Due Process
SALT standard
Formalism
Who/what is protected
Theoretical v. practical
Type of commission
Due Process clause
Substantive v. procedural due process
Whether person affected has fair notice and hearing about
State actions should be used for fair and legitimate purposes
Jurisdictional Due Process
Theoretical concepts for taxation
Consent to state actions
Quid pro quo benefits
Wisconsin v. JC Penney (3-3)
Privilege and dividend tax
Majority characterizes this as a supplemental income tax
“For constitutional purposes the decisive issue turns on the operating incidents of a challenged tax”
Anything can be an income tax and this violates due process
Territorial, consent, quid pro quo are all clearly met
Call state's power to tax a fundamental right of state
Norfolk & Western Railway Co. v. Missouri State Tax Commission
Involved a personal property tax
Unit Rule
Apportioned by amount of railway track used compared to total railway track existing
Basis for later apportionment cases
Theoretical basis for taxing coal property
Rational relationship burden
Enhancement theory based on the increased value of infrastructure
Court found this to be violation of due process and commerce clause
National Bellas Hess, Inc. v. Dept. of Revenue of Illinois
Mail order firm
Use tax
Quid pro quo basis for taxation, company using facilities of mailing in the state
Consent is arguable
Directing activity towards the state, minimum contacts
Due process argument was probably not the most effective route here
Physical presence was a factor in determining validity of tax
8-31-16
Commerce Clause Background
Topics
The Commerce Clause
Dormant Commerce Clause
National v. Local Activities
Multiple taxation
Spector v. O'Connor
Should know these cases:
Western Livestock (magazine
a higher burden than due process clause, as in its easier to prove due process was met and that showing something doesn’t burden commerce clause is harder
Notes Complete Auto's 4-part test, in which commerce clause challenge to a tax will be upheld if… (pg. 3-23)
Substantial nexus
Fairly apportioned
Not discriminating against interstate commerce
Fairly related to services provided by the state
Complete Auto Transit Inc. v. Brady, Chairman, Mississippi Tax Commission
The 4-part test wasn’t actually outlined in the case, the court in Quill just said this was there, but the test is now widely used in modern analysis
9-7-16
Quill recap (MOST IMPORTANT SALT CASE EVER)
Physical presence/Substantial nexus
So, sales and use taxes require physical presence in the state; but we're unclear about other types of taxes
Court sticks with physical presence bright line rule
Justice White's dissent believes that all we need is the 4-part Complete Auto test
Takeaways
Officially split due process and commerce clause analyses for SALT
Due process is concerned with fundamental fairness
2-prong due process test – purposeful availment, and state must provide its own services?
4-prong commerce clause test – Complete Auto
