State Tax Snapshot: Still Reading State Tax Tea Leaves After Obamacare Decision


 The issues before the U.S. Supreme Court in the Obamacare case included federal powers under the U.S. Commerce Clause, the federal government’s power to strip funds from states that balk at new requirements, and the Anti-Injunction Act. Before the decision, it seemed that the high court’s ruling might affect state tax jurisprudence.

The question over the U.S. Commerce Clause was especially tantalizing from a state tax perspective because it has figured so prominently in landmark cases.

But after the decision was issued, the consensus among state tax experts I asked seems to be that it is too early to tell or that the court's pronouncement regarding the Commerce Clause probably has little significance to the state tax arena.

A majority of the court in the Obamacare decision found that Congress lacks the authority to regulate transactions under the U.S. Commerce Clause that do not exist yet. It’s hard to imagine this holding having much significance in the state tax arena because the cases typically involve a taxpayer who has already engaged in a certain type of activity, a state tax expert told me.

Up until last year, it would have been reasonable to ask why anyone would expect the outcome of a case involving federally mandated health insurance to affect state tax jurisprudence with respect to interstate commerce.

But in 2011, the high court issued two decisions related to personal injury cases that state tax practitioners are using as ammunition for challenges under the Due Process Clause. In  J. McIntyre Machinery LTD v. Nicastro, 131 S. Ct. 2780 (2011), the court found that imposing New Jersey jurisdiction over a foreign company based on the presence of one of its machines in the state violated the Due Process Clause. In Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011) the court found that the fact that a tire company sold its product in North Carolina was not the kind “continuous and systematic general business contacts’’ to warrant general jurisdiction over a subsidiaries based in Turkey and France.

It might be too early to dismiss the U.S. Supreme Court’s latest pronouncement regarding the U.S. Commerce Clause. Because so many of the disputes arising over state taxes involve emerging technologies, it’s hard to predict the different contexts in which the high court will view interstate commerce.

By Steven Roll

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