Jurisdiction to Tax

Jurisdiction to Tax

Generally.—The operation of the Due Process Clause as a jurisdictional limitation on the taxing power of the states has been an issue in a variety of different contexts, but most involve one of two basic questions. First, is there a sufficient relationship between the state exercising taxing power and the object of the exercise of that power? Second, is the degree of contact sufficient to justify the state's imposition of a particular obligation? Illustrative of the factual settings in which such issues arise are 1) determining the scope of the business activity of a multi-jurisdictional entity that is subject to a state's taxing power; 2) application of wealth transfer taxes to gifts or bequests of nonresidents; 3) allocation of the income of multi-jurisdictional entities for tax purposes; 4) the scope of state authority to tax income of nonresidents; and 5) collection of state use taxes.

The Court's opinions in these cases have often discussed due process and dormant Commerce Clause issues as if they were indistinguishable.409 A more recent decision in Quill Corp. v. North Dakota,410 however, utilized a two-tier analysis that found sufficient contact to satisfy due process but not dormant Commerce Clause requirements. In Quill,411 the Court struck down a state statute requiring an out-of-state mail order company with neither outlets nor sales representatives in the state to collect and transmit use taxes on sales to state residents, but did so based on Commerce Clause rather than due process grounds. Taxation of an interstate business does not offend due process, the Court held, if that business "purposefully avails itself of the benefits of an economic market in the [taxing] State . . . even if it has no physical presence in the State."412 Thus, Quill may be read as implying that the more stringent Commerce Clause standard subsumes due process jurisdictional issues, and that consequently these due process issues need no longer be separately considered.413 This interpretation has yet to be confirmed, however, and a detailed review of due process precedents may prove useful.

409 For discussion of the relationship between the taxation of interstate commerce and the dormant commerce clause, see Taxation, supra.

410 504 U.S. 298 (1992).

411 504 U.S. 298 (1992).

412 The Court had previously held that the requirement in terms of a benefit is minimal. Commonwealth Edison Co. v. Montana, 453 U.S. 609, 622-23 (1982), (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 521-23 (1937)). It is satisfied by a "minimal connection" between the interstate activities and the taxing State and a rational relationship between the income attributed to the State and the intrastate values of the enterprise. Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 436-37 (1980); Moorman Mfg. Co. v. Bair, 437 U.S. 267, 272-73 (1978). See especially Standard Pressed Steel Co. v. Department of Revenue, 419 U.S. 560, 562 (1975); National Geographic Society v. California Bd. of Equalization, 430 U.S. 551 (1977).

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Last modified: June 9, 2014