Document Type

Article

Publication Date

2007

Abstract

The U.S. Supreme Court has on numerous occasions addressed the constitutionality of state taxes under the U.S. Constitution (most often under the Commerce Clause, but sometimes under the Equal Protection and Due Process Clauses). In general, the Supreme Court has granted wide leeway to the states to adopt any tax system they wish, only striking down the most egregious cases of discrimination against out-of-state residents. Thus, for example, the Court has generally refused to intervene against state tax competition to attract business into the state. It has twice upheld a method of calculating how much income of a multinational enterprise can be taxed by a state that is widely seen as both incompatible with the methods used by the Federal government and other countries, and as potentially producing double taxation. And it has allowed states to impose higher income taxes on importers than on exporters through the use of so-called "single factor sales formulas," under which a business pays tax to the state only if it makes sales to residents of the state, but not if it makes sales outside the state. Most recently, the Supreme Court has refused to intervene in two cases in which states imposed income taxes on an "economic nexus" theory on taxpayers with no physical presence in the taxing state.

Comments

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