state income tax, which piggybacks onto the federal

James Maule maule at law.villanova.edu
Thu Jan 12 09:24:44 PST 2006


John, 

Most interesting. Let's say there's at least a colorable claim. Who
brings it? A state income tax taxpayer who raises a case in controversy
by demonstrating that the state income tax liability for the year in
question is more than it would have been had the state legislature not
adopted the automatic pickup provision? More questions, which are not
rhetorical, but intended to enrich my understanding (or begin creating
it)...

1. Would the taxpayer be estopped if the taxpayer had acquiesced to,
and not challenged, the same state tax provision in an earlier year when
it had the effect of lowering state income tax liability? Or are the
separate tax years so separable that the acquiescence in one year is
irrelevant?

2. Does it matter that the state can prove (assuming it can prove) that
in the absence of the automatic pickup provision the legislature would
have adopted the federal tax changes in any event? Or is that the
critical issue, namely, that it is the MANNER in which the state
legislature ties state income tax law to federal law that matters,
rather than the FACT that the state legislature has done so or would do
so?

3. Does the case get tossed because it is a political question, namely,
that if the citizens of the state don't like what the legislature has
done, they can lobby and/or elect replacement legislators who would
repeal the "automatic pickup" provision?

Jim Maule

>>> "J. Noble" <jfnbl at earthlink.com> 1/12/2006 1:55:53 AM >>>
The claim I have in mind is that State law can only incorporate the 
federal definition of taxable income at the time of the adoption of 
the State law -- not as thereafter amended. This would not limit 
Congress' authority to amend federal law -- only State authority to 
incorporate future federal law. The claim might be framed as a State 
violation of the Tenth Amendment -- an anti-surrendering corollary to 
the anti-commandeering doctrine. It might also be framed as a denial 
of due process -- as if the State law provided that "taxable income 
shall include whatever Prof. Maule shall from time to time determine, 
less such deductions as he might from time to time allow, in his sole 
and absolute discretion, without regard to the State's fiscal 
requirements or the resulting tax burden on its citizens, because (as 
Prof. Maule points out) we have no authority to limit the exercise of 
his discretion." We might even have found a use for the Guarantee 
Clause.

I think the bottom line question is whether the bare minimums of 
State sovereignty, due process, and a republican form of government 
are satisfied by the State's unexercised authority to "repeal" the 
incorporated amendment of federal law -- recognizing that even if 
there was not a majority in favor of raising taxes, there might not 
be a majority in favor of lowering them once they've been raised.

At 8:50 PM -0500 1/11/06, James Maule wrote:
>Thinking of another argument, with which I don't agree. Congress
enacts
>a federal income tax. One or more states adopt it using an "automatic
>pickup changes" approach. Does that somehow "forbid" the Congress
from
>amending the federal income tax statute in any way that would have
the
>effect John describes, namely, an increase in state tax revenues
simply
>because of the federal change? If the answer is yes, would that not
in
>effect put the state (or states) in a position of dictating to the
>Congress what it can and cannot do with a federal income tax? Does
>anything in the U.S. Constitution suggest that state legislatures
should
>have such a "veto" power over the Congress in this manner?
>
>Jim Maule
>
>>>>  "James Maule" <Maule at law.villanova.edu> 1/11/2006 8:19:59 PM >>>
>At one time, no more, there was at least one state that required
>computation of state income tax liability simply as a percentage of
>federal income tax liability. That presents about as easy to describe
>a
>surrender of taxing power as there can be (in contrast to most of the
>mechanisms, which are, as you very nicely describe, somewhat
>round-a-bout). So if Congress raised the federal income tax rates,
the
>state income tax went up, and conversely, if federal rates went down,
>state taxes went down.
>
>I do not think anyone ever challenged this arrangement. It was
>repealed, I think, for political reasons.
>
>Many states do require the legislatures to meet and affirmatively
>adopt
>federal income tax changes. That, I am sure, passes constitutional
>muster because there's nothing unconstitutiional about "borrowing"
>statutory language. The requirement is found, as I recall, in state
>constitutional provisions. I don't think any state does this because
>of
>a concern about a federal constitutional violation. (And some states,
>e.g., California, engage in a pick and choose that doesn't come close
>to
>raising the issue).
>
>However, this process, particularly in states where legislatures meet
>infrequently or at times "out of sync" with the timing of federal tax
>changes, makes for a complicated tax situation for state income tax
>purposes. Thus, some states have done what you describe, a sort of
>"automatic" pickup (rather than affirmative post-event choice to
>adopt)
>federal tax law changes.
>
>But I don't think that it is the Congress that is violating anything.
>It enacts a federal income tax. It neither requires, suggests, or
>otherwise dictates to the states that they should have an income tax,
>piggyback the federal, "borrow" the federal, or go it alone (like
>Pennsylvania does to some extent). So if there is a violation, it
>would
>be a violation by the state legislature. Assuming there is no state
>constitutional prohibition, what is the violation? Suppose the state
>had
>a referendum on the question (and I think a few may have), and the
>people decided to go with the "automatic pickup." Would that make a
>difference? Can the people of the state waive any alleged right to be
>protected from surrendering? Why not?
>
>Jim Maule
>
>>>>  "J. Noble" <jfnbl at earthlink.com> 1/11/2006 5:02:26 PM >>>
>At 2:31 PM -0500 1/11/06, James Maule wrote:
>  >Well, that surely would raise interesting questions for the
Arizona
>>state income tax, which piggybacks onto the federal....
>
>When Congress amended the federal tax code to eliminate the interest
>expense deduction for consumer credit loans, the President's
>signature effectively increased State income tax levies by increasing
>"taxable income," as defined by federal law and incorporated by
>reference in State laws. The increase in taxable income was more than
>offset on your federal tax return by the simultaneous reduction of
>federal tax rates; but States enjoyed a tax revenue "windfall" by
>applying their own unadjusted tax rates to "taxable income," as
>defined and amended -- hereafter, whenever, and however -- by federal
>law.
>
>Setting aside a challenge under a State constitution's
>anti-delegation doctrine, can you frame a challenge under the U.S.
>Constitution to the States' seeming delegation of authority -- or to
>Congress's incidental assumption or inadvertent exercise of authority
>-- to increase State taxes? This doesn't fall under the federalism
>principle that "the power to tax is the power to destroy" because
>States can amend their laws to abandon or alter the incorporated
>federal definition (and they do, e.g. to exclude income from state
>and municipal bonds). But if the Tenth Amendment is still breathing
>in the anti-commandeering doctrine, doesn't O'Connor's opinion in NY
>v. US (Part IV-B) suggest a corollary "anti-surrendering doctrine"?
--
>
>"... [H]ow can a federal statute be found an unconstitutional
>infringement of state sovereignty when state officials consented to
>the statute's enactment?
>
>"The answer follows from an understanding of the fundamental purpose
>served by our Government's federal structure. The Constitution does
>not protect the sovereignty of States for the benefit of the States
>or state governments as abstract political entities, or even for the
>benefit of the public officials governing the States. ...
>
>"Where Congress exceeds its authority relative to the States,
>therefore, the departure from the constitutional plan cannot be
>ratified by the "consent" of state officials. ...
>
>"State officials thus cannot consent to the enlargement of the powers
>of Congress beyond those enumerated in the Constitution. Indeed, the
>facts of this case raise the possibility that powerful incentives
>might lead both federal and state officials to view departures from
>the federal structure to be in their personal interests. ... [W]hile
>it would be well within the authority of either federal or state
>officials ..., it is likely to be in the political interest of each
>individual official to avoid being held accountable to the voters
>.... The interests of public officials thus may not coincide with the
>Constitution's intergovernmental allocation of authority. Where state
>officials purport to submit to the direction of Congress in this
>manner, federalism is hardly being advanced."
>
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