State & Local Tax
STATE AND LOCAL TAXES—SPRING 2014
First Class Assignment
The course will address the nature of the state and local tax system in the United States. We will focus considerable attention on the limitations on the states (and localities) imposed by the United States Constitution. The course materials focus on principles with variations that are common to many of the states. We will not emphasize the Ohio tax system except to the extent that we will use the Ohio law for comparative and illustration purposes. The Ohio sales and use tax model will be used to examine basic principles applicable to those taxes.
The principal text is Pomp, State and Local Taxation, Seventh Edition, Revised2011, in two volumes. I will distribute additional materials periodically.
- January 13Introduction and Commerce Clause
Preface for Students
Complete Auto Transit
Boston Stock Exchange
Maryland v. Louisiana
Note: do not be put off by Professor Pomp’s questions after the cases, which often are bewildering but also contain useful information.
The Commerce Clause
Article I, Section 8, clause 3 of the Constitution of the United States provides that “[t]he Congress shall have Power…to regulate Commerce with foreign Nations and among the several states….” The U.S. Supreme Court has interpreted this provision to limit the authority of the states and localities to impose taxes. The Commerce Clause can restrict the states even in the absence of affirmative action by the U.S. Congress.
The first case that we read, Complete Auto Transit, initiates the “Modern Era” of Commerce Clause jurisprudence and is the logical place for us to begin our discussion. Most, but not all, of the Commerce Clause tax cases that predated Complete Auto Transit became irrelevant upon its announcement.We will discuss how to distinguish the useful from the irrelevant older decisions.
The Commerce Clause is a vital element in dealing with state and local tax issues. Some of the issues that we will discuss in this context (and for which we will try to provide cogent explanations) are the following:
- Why do purchases made at the brick and mortar merchant down the street require the payment of state (and local) sales tax but the transactions for the purchases of identical products from some merchants selling over the internet omit the tax?
- Why is it permissible for a state to provide grants to companies investing in the state while the state is prohibited from providing certain equivalent tax incentives for the investments?
- Why did the Ohio General Assembly recently decline to enact a very useful exemption from the Ohio income tax for those investing in Ohio and instead substituted a watered down tax credit that no one likes?
The answer to each of these questions is: “because of the Commerce Clause.”