A Contract Among States: Capturing Income of the World's Multijurisdictional Taxpayers

• Autore: Natasha Varyani
• Carica: Visiting Assistant Professor at Boston University School of Law
• Pagine: 219-241

ARTICLES & ESSAYS

DOI 10.6092/issn.2531-6133/6455

UNIVERSITY OF BOLOGNA LAW REVIEW

ISSN 2531-6133

[VOL.1:2 2016]

This article is released under the terms of Creative Commons Attribution 4.0 International License

219

A Contract among States: Capturing Income of the World’s

Multijurisdictional Taxpayers

NATASHA N. VARYANI†

TABLE OF CO NTENTS: 1. Managing Jurisdictions in an Evolving Economy; 2. The Multistate

Tax Compact; 2.1. Mission and Goals; 2.2. Congressional Consent and the Authority of

the Compact; 2.3. Articles III and IV: Election and Three Factor Apportionment; 2.4.

Modern Use of the Multistate Tax Compact; 3. State Courts Respond to Taxpayer

Elections; 3.1. I.B.M. in Michigan; 3.2. Gillette in California; 3.3. Kimberly-Clark in

Minnesota; 3.4. Amici Cur iæ and Other Stakeholders; 4. The Future of the Multistate

Tax Compact.

ABSTRACT: Systems for managing multiple taxing jurisdictions in a larger group are

working to keep up with the evolution of the modern multijurisdictional taxpayer.

Recent decisions from the high cour ts of several states have brought attention to a

meaningful tension in the goals of the Multistate Tax Compact, an agreement between

states. Though the federal government has ruled that no congressional approval is

necessary based on the Compact Clause of the U.S. Constitution, this agreement

between states has taken its place as a significant accord among the vast majority of

jurisdictions. Having operated as the most effective solution to the problems identified

by Congress in the 1960’s Willis Report, the Compact simultaneously disavows its

binding authority and relies on States meet its goal of promoting uniformity in state

tax administration. With billions of dollars of much needed tax revenue at issue, this

article seeks to examine the intricacies of the legal principles applied to this contract

among states while understanding its role in the modern economy, both within the

United States and beyond.

KEYWORDS: Multistate Tax Compact; Multi-Jurisdictional Tax; Apportionment; Compact Clause;

State Tax.

University of Bologna Law Review

[Vol.1:2 2016]

DOI 10.6092/issn.2531-6133/6455

220

Interstate commerce is a rich tax base.

It has, moreover, special political fascination.

A state or local tax levied upon it falls largely upon people in other states.

Here is a legislator’s dream: a lush source of tax revenue,

the burden of which falls largely on those who cannot vote him out of office.

1

1. MANAGING JURISDICTION IN AN EVOLVING ECONOMY

The way in which businesses conduct themselves across jurisdictional lines

both globally and nationally has rapidly evolved alongside technology. The

question of how to manage multiple taxing jurisdictions within a group has

given rise to some tensions that arise from our form of government. From the

inception of the United States,

2

courts and legislatures have grappled with the

problem of creating a series of tax rules in various jurisdictions

3

that work

together to create a fair, predictable and organized system that will result in

the free flow of commerce between and among jurisdictions while

appropriately compensating the relevant governments.

4

The European Union,

despite many relevant distinctions, may glean some applicable principals

about the tension between allowing each jurisdiction the independence to

create and administer their own tax laws while seeking conformity with a

larger system designed for a group of jurisdictions.

After the U.S. Supreme Court’s 1959 ruling in Northwestern States

Portland Cement Co. v. Minnesota, which held that net income of a foreign

corporation may be taxed by a state if that tax is fairly apportioned, Congress

commissioned a study which later became known as the “Willis Report” and

passed P.L. 86-272. The legislation that was enacted was intended to be a

“stopgap” measure until the question could be properly addressed recently

† Visiting Assistant Professor at Boston University School of Law. Special thanks to Leanne Scott,

Michael Fatale, Kevin McGrath, and to Boston University Law School, without whose gracious

support this article would not have been possible.

1

Wallace Mendelson, Epilogue to FELIX FRANKFURTER, THE COMMERCE CLAUSE UNDER MARSHALL, TANEY

AND WAITE 118 (Quadrangle Books 1964)(1937).

2

See THE FEDERALIST NOS. 30-36 (Alexander Hamilton).: balancing authority to tax of individual

states. See also U.S. CONST. amend. XIV, § 1. See also U.S. CONST. art. I, § 8, cl. 3

3

The Commerce Clause grants authority to Congress to limit the ability of the individual states to

impose a tax where such tax would be a burden on interstate commerce. The “Dormant”

Commerce Clause has developed by judicial opinion and has become an accepted grant of authority

to the Federal government to limit powers of individual states to tax even in the absence of

Federal legislation.

4

See U.S. Constitution Commerce Clause, see also International Harvester Co. v. Wis. Dep't of

Taxation, 322 U.S. 435 (1944); Northwestern Cement Co. v. Minnesota, 358 U.S. 450 (1959); Quill

Corp. v. North Dakota, 504 U.S. 298 (1992).