Jurisdiction to Tax

The First Amendment

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble..." (Texas Monthly Vs. Bullock)

Compact Clause

"No State shall, without the Consent of Congress, ... , enter into any Agreement or Compact with another State, or with a foreign Power, ..." Makes sense, States are not allowed to enter into agreements with other states without consent of congress, but there is the Multistate Tax Compact which state legislators can choose to participate in.

Due Process clause

"No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law..."

Commerce Clause

"The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." So states cannot take actions that impact foreign commerce, interstate commerce or Indian tribes

Supremacy Clause Prevents

- States cannot take action in areas specifically disallowed by the Constitution and federal legislation can override state laws on the basis of any constitutional powers - States cannot impose taxes on the federal government or any of its instrumentalities (McCulloh Vs. Maryland)

States are not allowed to treat nonresidents or nondomestic businesses more harshly than residents or domestic businesses. Examples of non-compliance

-Alabama charged out of state insurance companies higher tax rate -New Hampshire taxed nonresidents on income earned in the state but only if the state of residence didn't have income tax -New York allowed only residents to claim standard deductions and personal exemptions -South Carolina changed nonresident shrimp fishermen a license fee 100 times the amount of instate licenses

Purpose of MTC

1. Facilitating proper determination of of state and local tax liability of multistate taxpayers 2. Promoting uniformity and compatibility in state tax systems 3. Facilitating taxpayer convenience and compliance in the filing of tax returns and in other phases of tax administration 4. Avoiding duplicative taxation MTC was supported by Supreme Court in U.S. Steel Corp. Vs. Multistate Tax Commission

IRS

Federal Tax Return information is confidential under IRC 6103(a). But, audit results and federal tax return information is available to state tax representatives under IRC 6103(d). Most states have policy that they are willing to share state tax information with the IRS.

Full Faith and Credit Clause

Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof."

PL 114-235

Internet Tax Freedom Act Prohibits federal, state and local governments from taxing Internet access and from imposing discriminatory Internet-only taxes such as bit taxes, bandwidth taxes, and email taxes as well as multiple taxes on electronic commerce. Does not exempt internet sales

Public Law-86-272

Interstate Income law Prohibits a state from imposing an income tax on an out-of-state corporation if the corporation's only business activity in the state is soliciting orders which are approved and shipped from outside the state or made through independent contractors. "Solicitation of orders" includes "ancillary" activities that serve no purpose other than to facilitate sales. Big part of MTC is helping define and interpret this law

Import-Export Clause

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress."

Import-Export Clause Prevents:

Prevents states that have ports from charging import and export taxes on goods becuase landlocked states can't do that.

Tonnage Clause

Same thing as Import-Export Clause, except applies to taxes levied on ships docking. Clause is in coordination with Commerce Clause.

Uniform Division of Income for Tax Purposes Act, UDIPTA

Standardizes how income is taxed between states, members help develop rules and standards and must be adopted by each state legislator.

NEXUS

States cannot unfairly tax multistate businesses. NEXUS says that state taxes are unconstitutional unless there is a "minimal connection" between state and the person, property or transaction the state seeks to tax. States taxes are also unconstitutional if there is no "rational relationship" between the tax base attributed to the state and interstate values of the enterprise. Basically NEXUS is the connection that states have to a business - does business have employees in state, or just just goods to state, which affects tax treatment.

Privileges and Immunities Clause and Equal Protection Clause

The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States" and "No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."

Multistate Tax Compact, MTC

The MTC was created by a coalition of the states and is intended to "promote uniformity or compatibility in significant components of tax systems" among the states. States' legislatures choose whether or not to participate and at what level.

MTC Compact Members

The states, AL, AK, AR, CO, DC, HI, ID, KS, MO, MT, NM, ND, OR, TX, UT, WA enacted MTC into law. NV is only state that has not participated at all. Can participate at different levels, such as requesting MTC to audit Income Tax and Sales Tax on their behalf. Audit results are shared with all members.

full Faith & Credit Clause ensures the Supreme Court...

Will not wade into state conflicts. (Franchise Tax Board Vs. Hyatt)

Supremacy Clause

•"This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."