By now, you have most likely heard about the U.S. Supreme Court case regarding Wynne. The along awaited verdict. It was close (5-4 vote), but the taxpayer won. There are many publications by several firms and the media talking about the ruling and what it means, not only for taxpayers in Maryland, but other states as well. Regardless of what each firm or publication has said, have you read the case for yourself? I encourage you to do so. Especially state tax practitioners.
Most of the discussion in the ruling is around the application, existence and authority of the dormant Commerce Clause. The majority supports and utilizes the dormant Commerce Clause to rule in the taxpayer's favor. The minority appears to believe the dormant Commerce Clause has been twisted into something it was not created to be, and thus, the ruling is misled.
The ruling defines the purpose of the 'dormant Commerce Clause' as:
"prohibiting certain state taxation even when Congress has failed to legislate on the subject."
The majority of the Court said the following about the dormant Commerce Clause:
- The clause "precludes states from discriminating between transactions on the basis of some interstate element."
- "States may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the state."
- "We must consider not the formal language of a tax statute, but rather its practical effect."
Justice Scalia said the following in his dissenting opinion:
- The "negative Commerce Clause is a judicial fraud."
- "The clearest sign that the negative Commerce Clause is a judicial fraud is that utterly illogical holding that congressional consent enables States to enact laws that would otherwise constitute impermissible burdens upon interstate commerce."
- "Neither the Constitution nor our legal traditions offer guidance about how to separate improper state interference with commerce from permissible state taxation or regulation of commerce."
- "Change is almost the doctrine's natural state as it is the natural state of legislation in a constantly changing national economy."
- "Balancing the needs of commerce against the needs of state governments. That is a task for legislation, not judges."
The Ruling holds the following keys (that other firms and the media have seemed to latch onto):
- There is no distinction between a tax on gross receipts or a tax on net income when it comes to the application of the dormant Commerce Clause.
- There is no distinction between taxing individuals or corporations when it comes to the application of the dormant Commerce Clause.
- The Maryland taxing regime fails the "internal consistency test" of the dormant Commerce Clause by resulting in double taxation of out of state income and discriminating in favor of intrastate over interstate economic activity.
What do I think?
I think the case is an interesting discussion about the application of the Due Process Clause (the state's sovereign right to tax), and the limitations (or lack thereof) on a state's ability tax from the dormant (negative) Commerce Clause.
I think the case has ramifications for taxpayers across the country, including corporations and individuals. I am sure some lawyers and firms will extend the ruling's verdict to other fact patterns and litigation will ensue.
I think Quill and P.L. 86-272 may need to be re-examined as a result of this case.
What do you think?
Read the case and let me know.