location email icon

Los Angeles: 310.486.6705

What is the likely effect of Justice Scalia’s death on Tax cases pending in the USSCT

By admin of MillarLaw A Professional Corporation On Monday, February 15, 2016

Justice Scalia is known as an “originalist” in interpreting the Constitution.  An “originalist” is someone who looks to the language of the Constitution to find authority for an interpretation being proposed and who finding none would deny the requested relief.  An example of how his “originalist” approach was used in tax cases is found in his dissent in the 2015 case of The Controller of the Treasury of Maryland v. Wynne. This case involves an important tax apportionment issue between income earned in state and out of state.”

As stated in the Decision, the facts of the case are as follows:

“Brian Wynne and his wife are Howard County, Maryland residents who own stock in Maxim Healthcare Services, Inc. (Maxim), a company that provides health care services nationally. Maxim’s income is “passed through” to its owners, and the owners are then taxed individually. In 2006, Maxim filed income tax returns in 39 states and allocated a share of taxes paid to each shareholder. The Wynnes claimed the share of Maxim’s income taxes that they paid as a credit against their Maryland individual income tax, which includes Maryland state taxes and Howard County taxes. The Comptroller of Maryland determined that the Wynnes had incorrectly calculated their county tax credit by including the taxes they had paid to other states and issued an assessment for the remaining tax owed. The Wynnes appealed to the Hearings and Appeals Section of the Comptroller’s Office, which noted that the wrong county tax rate had been applied initially and revised the assessment, but nonetheless affirmed that the tax credit was limited to Maryland state taxes and not applicable to Howard County taxes.

The question presented  to the Court was:

Does the dormant Commerce Clause of the Constitution prohibit states from taxing all the income of their residents by mandating a credit for taxes paid related to income earned in other states?

The Court held that that a credit is mandated.  But, in his dissent Justice Scalia illustrates how his “originalist” approach to the Constitution would have worked against what is an apparently fair outcome.

“Justice Antonin Scalia wrote that the dormant Commerce Clause does not exist in the Constitution. The Constitution explicitly gives the federal government the power to regulate interstate commerce, but it does not say anything about prohibiting state laws that burden interstate commerce. The supposed doctrine also lacks a governing principle as well as internal consistency. Justice Scalia also noted that following precedent would require the tax in this case to be held unconstitutional only if it discriminated against interstate commerce on its face and was indistinguishable from a tax the Court had previously held unconstitutional. Because those factors are not met in this case, the tax should be upheld.”

Based upon his consistent “originalist” approach to Constitutional construction it would appear that the absense of what was  surely the strongest voice for strcit interpretation of the Constitution will result in perhaps more equitable construction of the tax laws.

Time will tell how the Court will ultiamtely change both in the short term, until a new Associcate Justice is confirmed and once over the long term.  But, given the conflicts  inherent in  the federal, state and local tax codes and regulations there will be numerous opportunites to seehow long lasting Justice Scalia’s influence will be in the tax area.

Millar Law A Professional Corporation

1900 Avenue of the Stars, STE 2300 | Los Angeles, CA 90067
Phone: 310.486.6705 Fax: 310.861-1863
| Los Angeles Law Office Map