Based on the recent Wynne case, many corporations, practitioners and states are wondering what other taxes are not 'internally consistent.' The internal consistency test comes from the Complete Auto Transit v. Brady U.S. Supreme Court case. The internal consistency test says that a tax must be structured so that if, hypothetically, each state imposed an identical tax, no multiple taxation would result.
Questions raised by the U.S. Supreme Court in the majority opinion of the Wynne case along with the dissenting opinions, revolve around determining what is enough to declare a tax unconstitutional. Some say double taxation is not enough, you must have inherent discrimination and double taxation. Others say the tax must be facially discriminatory against interstate commerce. Others simply want to apply a 'common sense' approach.
Regardless of the approach, the case has increased discussion and awareness of the possibility of other state tax and credit schemes being unconstitutional. Some corporations may choose to proactively review tax and credit schemes to challenge. Some states may voluntarily admit their tax regimes are unconstitutional. Almost feels like a 'witch hunt.'
As a taxpayer advocate, I agree that states should not have unconstitutional taxes. However, I am concerned that states are under attack and lack the resources to adequately defend themselves. I want states to be able to obtain the revenue they need in a constitutional fashion, and the basis on which a tax is determined to be unconstitutional is a complex matter. One that generally involves lawyers, the courts and even the U.S. Supreme Court.
As a taxpayer advocate, I fight for taxpayers to obtain clarity to determine what tax positions they should take. That clarity sometimes remains out of reach. Today, I find myself feeling sympathetic to state legislatures and departments of revenue as they struggle to create clarity. We live in a state tax world of 'grey' which leaves everything open to some level of interpretation and scrutiny. Taxpayers feel like they are continually fighting an uphill battle against unfair and unclear rules and regulations. States feel like taxpayers are taking advantage of unclear rules and regulations and lack the resources (people and money) to adequately fight back. Bottom line, we need to work together (states, corporations, tax practitioners) to find solutions that are a 'win-win' for all parties involved.