US Supreme Court – Failure to provide credit to Maryland’s local portion of personal income tax for out-of-state income tax paid is unconstitutional

In a 5-4 decision, the United States Supreme Court found that the absence of a credit against the local portion of Maryland’s personal income tax, with respect to tax paid to another state on pass-through income from an S corporation, was unconstitutional. The tax failed the dormant Commerce Clause’s internal consistency test because if every state adopted Maryland’s tax scheme, interstate commerce would be taxed at a higher rate than intrastate commerce.  The Court noted that a Maryland resident earning income outside the state would experience double taxation due to paying tax in his state of residence and in the state where income is earned.

The Court further held that the tax is inherently discriminatory and operates as a tariff.

The Court rejected assertions that it reach a different result because applicable Supreme Court dormant Commerce Clause authority involves corporate gross receipts taxes.  The Court provided that its conclusion was not affected by the fact that the instant case involved a state’s personal income tax.

Accordingly, the Court affirmed the Maryland Court of Appeals decision in favor of the taxpayers.

A more detailed analysis will be forthcoming. Read more

Colo. Gov. Asks Supreme Court To Ax Taxpayer Rights Row

Share us on: By Eric Kroh
Law360, New York (October 27, 2014, 2:03 PM ET) — Colorado Gov. John Hickenlooper has asked the U.S. Supreme Court to block a challenge by state legislators and educators to the state’s taxpayer bill of rights, which allows voters to approve or deny new taxes, saying the case is not justiciable.
Solicitor General Daniel D. Domenico, on behalf of Hickenlooper, asked the high court to review the Tenth Circuit’s decision in July to let the case go forward, contending that the question on the state’s government should be left out of federal courts.

“Courts throughout American history would have dismissed this case as non-justiciable,” Domenico said in his petition for certiorari, filed Oct. 17. “More than a century of Supreme Court precedent prohibits the federal judiciary from wading into the political questions raised by the guarantee clause.”

The Supreme Court should put to rest the confusion it created in New York v. United States when it opened up the question of whether to maintain the per se rule that prohibits federal courts from ruling on the structure of state governments, Domenico said.

Since the New York decision, a three-way circuit court split has emerged, with the Tenth Circuit standing alone in holding that some guarantee clause claims are justiciable, Domenico said. Meanwhile, the Eleventh and Ninth circuits have continued to apply a per se bar to guarantee clause claims, and other courts have raised the possibility of adjudicating a guarantee clause case but have not done so, he said.

“In parting ways with these other approaches, the Tenth Circuit has taken at least two leaps beyond current law,” Domenico said. “It not only questioned the per se rule but affirmatively rejected it — something no other court has done.”

The Supreme Court should also decide that the plaintiffs in the case do not have standing because they cannot point to a specific legislative vote that has been undone by the taxpayer bill of rights and so fail the test the high court had established in Raines v. Byrd, according to Domenico. Only three of the plaintiffs remain in the state Legislature, he said.

A representative of the plaintiffs was not immediately available for comment.

The Colorado taxpayer bill of rights, or TABOR, adopted in 1992, mandates that a tax law passed by the state Legislature and signed by the governor always be placed on the next election’s ballot for voters to decide whether to approve it. Various groups including state legislators and educators sued Hickenlooper in 2011, claiming that requiring the electorate’s advance approval of tax increases dilutes the power of the legislators, violating the guarantee clause.

Immediately after being sued, Hickenlooper tried to dismiss the suit, saying the plaintiffs did not have standing because they were not individually injured by TABOR. The district court denied the motion, and the governor appealed to the Tenth Circuit.

The three-member Tenth Circuit panel upheld the lower court’s decision on strictly jurisdictional grounds in March, affirming that the plaintiffs had provided adequate proof that TABOR, by requiring voter referendum on most tax issues, caused them injury. The appellate court did not address the case’s merits. In July, a divided Tenth Circuit decided against rehearing the lawsuit en banc.

Hickenlooper is represented by Colorado Solicitor General Daniel D. Domenico.

The case is Hickenlooper v. Andy Kerr et al., case number 14-460, in the U.S. Supreme Court.


–Editing by Christine Chun.

U.S. Supreme Court May Consider “Piggyback Tax” Case

According to the Washington Post, the U.S. Supreme Court may hear a case against Maryland’s “piggyback tax.” In Maryland, tax paid in other states is deductible for state taxes but not for city and local jurisdictional taxes. The Maryland Court of Appeals found the law unconstitutional, citing that it violates the commerce clause. Maryland has appealed the case to the U.S. Supreme Court, and recently the Court requested the Obama administration’s views on the matter.

Maryland appeals income tax case to Supreme Court

Problems with Affiliate Nexus

The article Affiliate nexus litigation: Everyone loses by Annet Nellen points out some of the glaring problems with affiliate nexus laws. Some of these include:

  • Litigation Costs– Amazon and Overstock have proven time and time again that they are willing to litigate these laws.
  • Loss of income tax revenue– Amazon and Overstock have decided to sever their ties with affiliates in state with these types of laws, reducing the amount of income that the states can tax.
  • Problem still remains–After a relationship with a 3rd party affiliate is severed, a company is no longer liable to collect sales tax.
  • No solution reached–There are two conflicting cases on affiliate nexus (New York, and Indiana), and the Supreme Court has been unwilling hear the case. The only real hope for a solution seems to lie with Congress.

Supreme Court Declines to Hear Online Sales Tax Case

The Supreme Court of the United States has declined to hear a case involving online sales tax in New York, thus letting the New York statute stand.

The Statute requires that companies like Overstock and Amazon have to collect and remit sales tax in the state even if they do not have facilities or a direct physical presence in the state. The statute operates on the basis that companies have a physical presence simply by having contracts with  3rd party affiliates within that state.

Amazon and Overstock won a similar case in Indiana back in October, meaning that there are currently two conflicting rulings on the matter.

Online Travel Companies Are Providers of Hotel Accommodation in Arkansas

The Arkansas supreme court upheld a circuit courts order certifying that online travel companies are providers of hotel accommodation and therefore are required to collect and remit sales tax. Read the desicion: