Weekly Round-Up: Retroactive Tax Legislation: Where Is the Modesty?

Retroactive taxes generally must be limited to a modest period of retroactivity. However, with the U.S. Supreme Court's denial of cert. in the Miller v. Johnson and General Motors cases, retroactive periods of 6 to 11 years have been allowed to stand, according to a new article by Erica Horn and Stephen Sherman, of Stoll Keenon Oden PLLC, published in this week's issue of the Weekly State Tax Report.

"States need money." This simple sentence was the first sentence in an article published two years ago. Over two years later little has changed-states still need money, and still aggressively pursue legislation to retroactively revoke refund claims. Thus, the question remains whether a state may extinguish a taxpayer's right to refund.

Taxpayers have fought these efforts based on the Due Process Clause of the Fourteenth Amendment, which provides "[N]or shall any State deprive any person of life, liberty, or property, without due process of law." The U. S. Supreme Court addressed the constitutionality of retroactive tax legislation in United States v. Carlton, limiting the circumstances and time within which a state may amend tax statutes relied upon by taxpayers. To this end, a state cannot retroactively amend a tax statute without legitimate reason and prompt action, and even then may apply the statute retroactively only for a modest period. 

However, federal and state courts have found and exploited ambiguities in the Court's guidance.

For a complete analysis of the U.S. Supreme Court's decision in Carlton and a comprehensive look at recent state cases that illustrate the varying ways of understanding and applying the Carlton decision when reviewing retroactive tax statutes, check out the article by Horn and Sherman here.

In other developments…

A State-by-State Analysis of Income Trends , a new report by the Center on Budget and Policy Priorities.

State and local property taxes target commercial and industrial property , by Joseph Henchman of the Tax Foundation.

Sunshine Overruns: Hawaii's Solar Tax Credits Carry Soaring Price Tag , by the Pew Center on the States. 

Compiled by Priya D. Nair
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