Economic Substance Doctrine and Standard of Review
Coltec Corp. v. United States
No. 06-659
Supreme Court of the United States
NCLC urged the Supreme Court to grant review to consider the appropriate standard of review in economic substance doctrine cases. In its brief, NCLC argued the court below gave no deference to the defendant's legitimate business judgment and instead adopted an "objective" test which required the court to make its own independent judgment. Naturally, courts do not have the capacity to make such judgments. In addition, NCLC argued that courts of appeals should defer to district court factual findings on the presence or absence of economic substance.
Amicus brief filed 1/12/07. Decision 2/20/07.
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Economic Substance Doctrine and Exclusionary Rule
Dow Chemical Co. v. United States
No. 06-478
Supreme Court of the United States
NCLC urged the Supreme Court to grant review of the Sixth Circuit's erroneous refusal to consider expected conduct when analyzing a business tax deduction pursuant to the economic substance doctrine, which prohibits companies from seeking tax credits or deductions on the basis of transactions which lack economic substance apart from the expected tax benefit. In its brief, NCLC explained the court below misconstrued prior Supreme Court precedent to support its conclusion that a court can only look at past conduct and disregard the company's evidence it planned to engage in future conduct which would support the tax deduction or credit. The Sixth Circuit's exclusionary rule would undermine a wide swath of economic transactions which heavily rely on future conduct to be profitable.
Amicus brief filed 1/12/07. Decision 2/20/07.
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Tax Liability of Subchapter S Corporations
Information Systems & Networks Corporation v. United States
No. 06-234
Supreme Court of the United States
As part of its advocacy on behalf of small businesses and urging the Court to grant review and reverse, NCLC argues that the Federal Circuit improperly reversed the decision of the Court of Federal Claims when it refused to characterize taxes paid by shareholders of Subchapter S corporations engaged in government contracting activities as reimbursable costs. The Court of Federal Claims properly held that state income taxes paid on behalf of their shareholders by Subchapter S corporations (small businesses with less than 75 shareholders) are reimbursable costs of performing government contracts. The government has opposed treating state taxes paid by S corporation shareholders as a reimbursable costs because the corporations themselves are considered "exempt" from paying state income tax (though its shareholders are liable for the taxes on a pass-through basis), an argument NCLC claims is based on a fundamental misunderstanding of the purpose of Subchapter S corporations.
Amicus brief in support of plaintiff/cross-appellant filed 3/10/05. Motion for leave to file amicus brief out of time granted 3/28/05. Decision ___. Amicus brief in support of cert. filed 12/22/06. Decision 1/22/07.
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Commerce Clause and Taxes on Distribution of Products
McLane Western, Inc. v. Dep't. of Revenue, State of Colorado
05-1294
Supreme Court of the United States
NCLC urges the Court to grant review to consider whether Colorado's imposition of a tax on tobacco products at the first point of distribution within the state violates the Commerce Clause. Because the tax is levied at the first point of distribution, in-state businesses receive more favorable tax treatment than out-of-state businesses due to the increase in retail price as the product moves higher up the distribution chain. NCLC argues that this structural imbalance runs afoul of the Commerce Clause.
Amicus brief filed 6/12/06. Cert denied 10/2/06.
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Commerce Clause and Flat Tax on Commercial Vehicle Operation
American Trucking Associations Inc., et al. v. State of Oregon, et al.
No. 05-1177
Supreme Court of the United States
NCLC has asked the Supreme Court to overturn an Oregon Supreme Court ruling that would allow the state of Oregon to charge a flat tax on trucking services instead of a weight-mile tax. NCLC notes in its brief that allowing states to pass laws favoring companies that operate primarily intrastate over those that operate in several states is a violation of the Commerce Clause. Companies that operate in multiple states would pay a disproportionate, higher amount of taxes, resulting in a competitive advantage for companies strictly shipping within the state and locally. NCLC argues that passage of the law in Oregon will likely result in other states trying to pass similar flat tax laws that unfairly benefit intrastate shippers.
Amicus brief filed 4/14/06. Decision 6/26/06.
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Tax Liability of Subchapter S Corporations
Information Systems & Networks Corporation v. United States
Nos. 04-5151, 04-5154
U. S. Court of Appeals for the Federal Circuit
As part of its advocacy on behalf of small businesses, NCLC filed an amicus brief opposing the Federal Government's appeal in this case. At issue is whether state income taxes paid on behalf of their shareholders by Subchapter corporations (small businesses with less than 75 shareholders) are reimbursable costs of performing government contracts. The Court of Federal Claims held that they are. The government does not want to treat state taxes paid by S corporation shareholders as an reimbursable cost because those corporations are "exempt" from paying state income tax, an argument NCLC claims is based on a fundamental misconstruction of the language and intent of the tax code.
Amicus brief in support of plaintiff/cross-appellant filed 3/10/05. Motion for leave to file amicus brief out of time granted 3/28/05. Decision 2/6/06.
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Validity of State Tax Incentives Under the Commerce Clause
Cuno v. DaimlerChrysler, Inc.
No. 01-3960
U. S. Court of Appeals for the Sixth Circuit
Having been urged to do by NCLC, the Supreme Court has granted review of the Sixth Circuit's ruling that Ohio's investment tax credit violates the dormant Commerce Clause. The NCLC and other business organizations have argued that the ruling would wreak havoc with garden-variety tax incentives across the nation and undermine efforts to create new jobs.
Amicus brief in support of rehearing en banc filed 9/17/04. Motion for leave to file granted 10/12/04. En banc review denied 1/18/05. Amicus brief in support of petition for writ of certiorari filed 7/20/05. Certiorari granted 09/27/05.
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Flat Tax under the Commerce Clause
American Trucking Association v. Michigan Public Service Commission
No. 03-1230
U. S. Supreme Court
The High Court affirmed the appellate court ruling, saying petitioners failed to show that Michigan's fee burdens or discriminates against intrastate commerce, or violates the Commerce Clause in any way.
NCLC had urged the Supreme Court to strike down as an unconstitutional burden on interstate commerce a $100 charge assessed by Michigan on motor carriers transporting property within the State. NCLC argued that because the tax is the same amount for truckers regardless of whether they use 50 miles of the state's highways or 50,000 miles, it runs afoul of the Commerce Clause's prohibition on unlawful burdens on interstate commerce.
NCLC also argued that because the Michigan fee is protectionist as well as discriminatory, it discourages interstate truckers from competing with in-state trucks, and could potentially affect many other participants in interstate commerce.
Amicus brief filed in support of petition for cert. filed 4/31/04. Cert. granted 1/14/05. Amicus brief on the merits filed 2/28/05. Decided June 20, 2005.
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Validity of State Tax Incentives Under the Commerce Clause
Cuno v. DaimlerChrysler, Inc.
No. 01-3960
U. S. Court of Appeals for the Sixth Circuit
The Sixth Circuit denied en banc review of a panel ruling that Ohio's investment tax credit violates the Commerce Clause. NCLC argued that the Sixth Circuit's ruling would wreak havoc with commonly used tax incentives across the nation, and undermine efforts to create new jobs.
Amicus brief in support of rehearing en banc filed 9/17/04. Motion for leave to file granted 10/12/04. En banc review denied 1/18/05.
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Flat Tax under the Commerce Clause
American Trucking Association v. Michigan Public Service Commission
No. 03-1230
U. S. Supreme Court
Agreeing with NCLC, the Supreme Court will review a Michigan state court decision that upheld a flat tax levied uniformly on both interstate and intrastate truckers. NCLC argued that because the tax is the same amount for truckers regardless of whether they use 50 miles of the state's highways or 50,000 miles, it runs afoul of the Commerce Clause's prohibition on unlawful burdens on interstate commerce. NCLC also argued that if the court's ruling were to stand, it could potentially affect many other participants in interstate commerce.
Amicus brief filed in support of petition for cert. filed 4/31/04. Cert. granted 1/14/05.
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Agreeing with NCLC, the court agreed that the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 USC 1961 et seq., does not provide an exception to the revenue rule, which holds that the courts of one sovereign will not enforce the tax judgments or claims of another sovereign.
The court held that it is not a sham for business transactions to be structured to minimize tax liability if the transaction has a "business purpose." A taxpayer does not lack "business purpose" simply because there is no tax-independent reason for a taxpayer to choose between different ways of conducting its business. To conclude otherwise, the Court said, would prohibit tax planning.
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