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SCOTUS to decide on double taxation across state lines [Commerce]
Hotair ^ | 06/01/2014 | Jazz Shaw

Posted on 06/01/2014 6:39:57 AM PDT by SeekAndFind

A rather wonky interstate commerce case has been granted a writ of certiorari and will be heard by the Supreme Court during the fall session. The reason this particular petition should interest you is that it has the potential to affect so many people, specifically those who derive income from any sources outside the state where they live. As explained in this Forbes article, the fundamental question being put to the court is as follows:

Does the United States Constitution prohibit a state from taxing all the income of its residents — wherever earned — by mandating a credit for taxes paid on income earned in other states?

The specifics of the original case:

In this case, a married couple, the Wynnes, reported taxable net income of approximately $2.7 million. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states but not for any county or local government taxes. The State of Maryland denied the credits and issued a notice of deficiency and the Wynnes appealed. At a hearing, the assessment was affirmed.

So the Wynnes lost the first two rounds in court, even though they were apparently taxed by the states where the income was generated and then taxed again in Maryland But they then amended their original request, asking the courts to answer the question, “whether a state had the unconditional right to tax all income based on residency.”

When they phrased it that way, the Circuit Court agreed with the Wynnes. The state appealed and the Court of Appeals sides with the Wynnes as well, since they were being subjected to double taxation. Not suprisingly, the Obama administration has weighed in with an amicus curiae brief supporting the state, though their argument mainly seems to be, Hey! This could cut out a lot of tax money!

The feds argued in their brief that “though States often choose to grant tax credits to their residents for income taxes paid in other States, nothing in the Commerce Clause compels a State to offer such credits or otherwise defer to other States in the taxation of its own residents’ income.” Further, “[t]he decision… may lead to challenges to similar tax schemes in other jurisdictions; and is inconsistent with statements made by the highest courts in other States.”

Don’t expect a quick answer here, since we’ll be lucky to have a decision by Christmas. But as wonky as it may sound, you should probably keep an eye on this one. It doesn’t only affect wealthy investors. If you commute across state lines for work and don’t receive a full credit for taxes paid in the state where you work, this could directly impact your bottom line too.


TOPICS: Business/Economy; Constitution/Conservatism; Government; News/Current Events
KEYWORDS: scotus; supremecourt; tax

1 posted on 06/01/2014 6:39:57 AM PDT by SeekAndFind
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To: SeekAndFind; Lurking Libertarian; Perdogg; JDW11235; Clairity; Spacetrucker; Art in Idaho; ...

FReepmail me to subscribe to or unsubscribe from the SCOTUS ping list.

2 posted on 06/01/2014 6:44:00 AM PDT by BuckeyeTexan (There are those that break and bend. I'm the other kind. ~Steve Earle)
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To: SeekAndFind
Interesting case. I can speak to this based on my own experience. This may have violated my first rule of doing business in multiple jurisdictions: Always reside in the state with the lowest tax rate. And if possible, make damn sure that your official state of residence has no state income tax at all.
3 posted on 06/01/2014 6:45:16 AM PDT by Alberta's Child ("What in the wide, wide world of sports is goin' on here?")
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To: Alberta's Child

RE: And if possible, make damn sure that your official state of residence has no state income tax at all.

That limits you to just 7 out of 50 states.


4 posted on 06/01/2014 6:46:32 AM PDT by SeekAndFind
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To: SeekAndFind
Right -- that's why I said: "if possible."

Even though only seven states have no income taxes, there are a few other states with income tax rates that are very low and reasonable. Tennessee and New Hampshire, for example, only assess income taxes on interest and dividend income.

5 posted on 06/01/2014 6:51:52 AM PDT by Alberta's Child ("What in the wide, wide world of sports is goin' on here?")
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To: SeekAndFind

I wonder if that would apply to U.S. citizens who live and work in another country - and damn well pay income taxes back to the U.S. - or get fined up the wazoo. Double taxation again.

I just don’t see how that is legal.


6 posted on 06/01/2014 6:52:42 AM PDT by maine-iac7 (Christian is as Christian does - by their fruits)
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To: Spunky

Ping for later.


7 posted on 06/01/2014 6:59:51 AM PDT by Spunky (BIG GOVERNMENT MAKES SMALLER CITIZENS.)
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To: maine-iac7

RE: I wonder if that would apply to U.S. citizens who live and work in another country - and damn well pay income taxes back to the U.S. - or get fined up the wazoo.

That would and SHOULD be the next challenge IF this one is decided rightly.

America (the so called land of the free ), is one of only two countries ( the other being Eritrea ) that taxes income of citizens and permanent residents earned OUTSIDE the United States.


8 posted on 06/01/2014 7:04:52 AM PDT by SeekAndFind
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To: maine-iac7
I wonder if that would apply to U.S. citizens who live and work in another country - and damn well pay income taxes back to the U.S. - or get fined up the wazoo. Double taxation again.

A U.S. citizen who is taxed in another country is not taxed twice on the same income. The U.S. has treaties with many countries which specify which country can tax which kind of income. When there is no applicable treaty, the U.S. Internal Revenue Code allows the U.S. taxpayer a credit for foreign taxes paid.

Having said all that, the IRS takes the position that these credits are a matter of "legislative grace," meaning that (in their view) nothing in the Constitution requires Congress to allow such a credit.

9 posted on 06/01/2014 7:12:26 AM PDT by Lurking Libertarian
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To: Alberta's Child

However, NH’s property tax rate more than makes up the difference. Property taxes don’t care what your personal income is whereas taxed income often has some relief in the form of deductions or exemptions.


10 posted on 06/01/2014 7:14:19 AM PDT by PrairieLady2
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To: PrairieLady2

You don’t have to own a home in a state to use it as your official residence. Heck, just look at how many members of Congress get away with renting an unfinished basement in a friend’s home back in their home district and using that as their “residence” even as they own and maintain a residence in D.C. or northern Virginia.


11 posted on 06/01/2014 7:20:14 AM PDT by Alberta's Child ("What in the wide, wide world of sports is goin' on here?")
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To: PrairieLady2

Another option is to have the S Corporation own the home in a state like New Hampshire. The taxpayers can then pay a nominal rent to the S Corp. for their own home. This allows them to take more deductions on the home (depreciation and repairs, for example) than they would be able to take as individual taxpayers.


12 posted on 06/01/2014 7:24:40 AM PDT by Alberta's Child ("What in the wide, wide world of sports is goin' on here?")
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To: Lurking Libertarian
The part about no double-taxation on foreign income that is subject to taxation is exactly right. If you pay taxes to a foreign jurisdiction, you still have to file a U.S. tax return but you are given a credit for what you pay to the foreign jurisdiction. So if the other jurisdiction has a higher income tax rate, then you likely won't owe anything to the IRS.

However, this isn't necessarily a "legislative grace" in every case. Many of these arrangements are subject to treaties that the U.S. signs with foreign countries, and this might be one of the rare cases where a U.S. citizen can rely on the terms of a treaty with a foreign nation to protect himself from a predatory Federal government.

13 posted on 06/01/2014 7:28:46 AM PDT by Alberta's Child ("What in the wide, wide world of sports is goin' on here?")
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To: SeekAndFind

Try this on for size all you faculty lounge freaks. Will all the states be able to tax the incomes of, lets say aircrews earn while in flight over their state, or train crews while choo chooing by> How about those nasty 18 wheelers rolling along the interstates? Was tried before. Bombed out big time.


14 posted on 06/01/2014 7:45:55 AM PDT by Don Corleone ("Oil the gun..eat the cannoli. Take it to the Mattress.")
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To: SeekAndFind

I am at a loss here... All the states involved offer tax breaks for taxes paid in other states. The issue is the state collection of local and county taxes which do not offer those credits. Can SCOTUS mandate local tax law?

I’m thinking that where the SCOTUS will walk is a very fine line and rule that when states collect for local jurisdictions, there must be uniformity across the state and local taxes. Unreasonably complicated differences are an undue burden, and collection of those taxes must be performed by the local tax body.


15 posted on 06/01/2014 7:47:22 AM PDT by kingu (Everything starts with slashing the size and scope of the federal government.)
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To: SeekAndFind

No state has a right to tax the income of a non-resident. Even if they pass laws allowing it.


16 posted on 06/01/2014 7:47:43 AM PDT by I want the USA back (Media: completely irresponsible. Complicit in the destruction of this country.)
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To: SeekAndFind

When I authorized my daughter who lives in another state to charge my credit card to purchase a laptop computer to replace the one stolen during a burglary, the Socialist State of New York took New York sales tax on the transaction, even though the computer was made and sold in another state, purchased by a resident of that other state and has never been brought to New York. It’s simply because it was charged to My Credit Card and I am a resident of a state who would take the coins from the eyes of a corpse.


17 posted on 06/01/2014 7:48:07 AM PDT by BuffaloJack (Unarmed people cannot defend themselves. America is no longer a Free Country.)
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To: SeekAndFind

Another reason to live in Texas ;-)


18 posted on 06/01/2014 7:55:54 AM PDT by achilles2000 ("I'll agree to save the whales as long as we can deport the liberals")
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To: SeekAndFind

Does this also affect ALL professional athletes????

They do a game in states everywhere, and are all those states demanding income based upon a percentage of their overall contract income & the appearance of such athlete in their state???

How about a person who’s company sends them all across the country to trouble-shoot problems with equipment or software????

How about people like Bill Clinton who speaks for money all across the country? Does HE get double-taxes???


19 posted on 06/01/2014 8:08:55 AM PDT by ridesthemiles
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To: BuffaloJack

Are you saying that every person who has a credit card in New York state is charged sales tax on all of their purchases——even if such purchases are made while you are on a trip in another state???


20 posted on 06/01/2014 8:15:53 AM PDT by ridesthemiles
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To: BuffaloJack

Cash is still King.


21 posted on 06/01/2014 8:25:39 AM PDT by Paladin2
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To: kingu; SeekAndFind
kingu:" I am at a loss here... All the states involved offer tax breaks for taxes paid in other states.
The issue is the state collection of local and county taxes which do not offer those credits.

Another issue is retirement and pension funds earned in one state , while you have residency in another state.
The 'legislative grace' that has been the norm in the recent past involves 'reciprocity' of non-taxation between the two states on pensions.
The SCOTUS resolution of the Wynne legal case could have much further ramifications on retirees , and people on fixed incomes.
Agreed , this case needs to watched .

22 posted on 06/01/2014 8:30:11 AM PDT by Tilted Irish Kilt (Political Correctness is Tyranny .. with manners ! Charlton Heston)
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To: SeekAndFind

Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.


23 posted on 06/01/2014 9:46:01 AM PDT by Svartalfiar
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To: BuckeyeTexan

Would this affect the owner of an Amway business in CA since Amway is located in Michigan?


24 posted on 06/01/2014 9:52:37 AM PDT by Salvation ("With God all things are possible." Matthew 19:26)
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To: ridesthemiles

how about a long distance truck driver?


25 posted on 06/01/2014 10:15:36 AM PDT by old gringo
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To: Salvation

What matters is where the income is earned and where the earner lives. So in your scenario, if the earner lives in CA and the income is earned in MI, then yes. If the earner lives and earns in CA, then no.

IANAL and IA(definitely)NA(tax)L either.


26 posted on 06/01/2014 10:38:19 AM PDT by BuckeyeTexan (There are those that break and bend. I'm the other kind. ~Steve Earle)
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To: SeekAndFind

“So the Wynnes lost the first two rounds in court, even though they were apparently taxed by the states where the income was generated and then taxed again in Maryland But they then amended their original request, asking the courts to answer the question, “whether a state had the unconditional right to tax all income based on residency.””

In theory a state could do anything its constitution permits including charge a fee for just living there based upon what you have. That is called property tax but apparently Maryland also calls it income tax.

I have to side with states rights here. Maryland has every right to be an asshole state in which nobody with money or industry should live.


27 posted on 06/01/2014 12:15:36 PM PDT by Monorprise
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To: I want the USA back

“No state has a right to tax the income of a non-resident. Even if they pass laws allowing it.”

I agree, but theses people are residence of Maryland, they own a house and live there. That was their first mistake. If you want to live in a den of thieves don’t be shocked when you get robed.


28 posted on 06/01/2014 12:17:37 PM PDT by Monorprise
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To: Svartalfiar

“Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”

I agree with that, although it would be rather complicated, but such is the concept of an income tax.

If an Income tax is on the individual then it can be only applied by the State and/or locality in which they live and only against that which they earn. This is in essence a “New” property taxes.


29 posted on 06/01/2014 12:21:25 PM PDT by Monorprise
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To: maine-iac7

I just don’t see how that is legal.””

You dont huh? Just wait until they Tax You for DIsagreeing with the New Tax.

what do tyrants care about the law???


30 posted on 06/01/2014 12:23:27 PM PDT by MeshugeMikey ( "Never, never, never give up". Winston Churchill)
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To: Monorprise; Svartalfiar

RE: “Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”

I agree wholeheartedly with the above statement. Next question -— should it not also apply to individuals working and earning their salaries OVERSEAS?


31 posted on 06/01/2014 12:23:33 PM PDT by SeekAndFind
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To: ridesthemiles

Now that is an interesting question, as it is indeed double taxation, as its taxation at the instant of acquisition, and taxation at the location of residency.

I would require any government in law to clearly define whether their income/property tax apply to one or the other. If it apply’s to both then they should equally tax their own citizens on both.

But to otherwise Tax anther State’s citizen on one while taxing their own Citizens exclusively on other is a violation Privileges and Communities clause Article 4 section 2.

I suppose the error is in presuming the Taxing entity


32 posted on 06/01/2014 12:40:45 PM PDT by Monorprise
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33 posted on 06/01/2014 12:41:49 PM PDT by musicman (Until I see the REAL Long Form Vault BC, he's just "PRES__ENT" Obama = Without "ID")
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To: ridesthemiles

It happened to me.
I wasn’t even on a trip. My daughter simply made the charge in the local Dell Store in Nevada and NYS charged me sales tax. I called to complain and they said they had the right. I think they are making it up, but I got the bill, nonetheless.


34 posted on 06/01/2014 3:04:24 PM PDT by BuffaloJack (Unarmed people cannot defend themselves. America is no longer a Free Country.)
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To: BuffaloJack

New York has been known to visit shopping malls in Pennsylvania, write down the license plate numbers of NY visiting mall shoppers and then send them an estimated sales tax bill based on an estimate of what the tax people thought is an average purchase.


35 posted on 06/01/2014 3:07:29 PM PDT by BuffaloJack (Unarmed people cannot defend themselves. America is no longer a Free Country.)
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To: SeekAndFind


RE: “Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”

I agree wholeheartedly with the above statement. Next question -— should it not also apply to individuals working and earning their salaries OVERSEAS?

It does apply to individuals working and earning their salaries over seas. the foreign government will tax you if you got income tax there. The fascist IRS just doesn’t know its own bounds there anymore than it knows its bounds anywhere else.


36 posted on 06/01/2014 5:33:48 PM PDT by Monorprise
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