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Constitutional Constraints

Federal Limitations on State Taxation

Federal Limitations on State Taxation

All states vary by the specific laws they set on taxation, such as whether to impose retail sales tax or how to distribute tax payer money. However, all states must operate under specific restrictions and limitations from the government as set forth by the Constitution. The Commerce Clause of the Constitution prohibits tax on trade among states, and gives the federal government the power to regulate all interstate trade. 
Before this clause allowed free trade among states, individual states had the right to tax goods as they crossed state lines making it difficult for businesses to profit from interstate trade. State taxation is also affected directly by the federal government. The Federation of Tax Administrators provides several laws that put a restriction on states to tax any businesses that may operate in several different states at once. 
One issue that has proved controversial is the right of states to place taxes on services provided by the internet or any revenue that may be related to internet businesses. The Internet Tax Non-discrimination Act places a restriction on states to tax internet access or electronic commerce.
These limitations on state taxation by the Constitution are designed to promote free trade between states. State taxes will be abolished by the government if they are found to discriminate against interstate trade. For example, in several court cases have made it illegal to make tax exempt certain products that are manufactured in state. The Constitution mandates that state taxes not be “facially discriminatory”, which means they cannot obviously favor instate business over out of state businesses.
States are free to choose the rate at which they tax income, by person or business, as well as tax on retail sales. States use this revenue to operate school systems and local governments, along with the income that is provided for them by the local government. 
States are allowed to tax residents as long as these taxes do not conflict with the limitations set forth by the Constitution and the federal government. Local taxation, such as property tax, is also regulated by the state and is used to provide services for state residents. States are permitted to regulate taxes on corporations, and these tax laws vary from state to state. In order to attract new business, some states require low corporate income tax.

Implications of Due Process on Tax Law

Implications of Due Process on Tax Law

Due process is guaranteed to any citizen that is involved in a court action within the United States. It does not matter if the individual has brought the action, or had the action brought against them. The same rights apply regardless of the action. Tax laws are often the subject of court actions and are subject to the implications of due process. 

There are many implications of due process over tax laws, including the entity that has control over taxation. Congress has the power to regulate federal taxes, but must do so with uniformity and equal protection, free from any discrimination or prejudice. Each state also has control over state taxes, and each state can make those determinations individually. For example, some states do not have any income tax, while most do.

Many issues that relate to taxes can be protested in court. Most citizens have the right to protest a property tax appraisal in the courts. Because of the implications of due process, the case should be heard in a speedy manner. Due process also ensures that the public trial is fair and officiated by competent individuals. An important implication of due process is that the trial must be decided by a impartial judge or jury. 

In other words, the case must be decided without any prejudice or discrimination. The individual that is disputing their property tax appraisal must also be able to be heard while in the court. In fact, if the person chooses to represent themselves, they must be allowed to understand the laws that apply to their case. Tax laws, like other laws, must be written in a way that each citizen should be able to read them and understand them. 

For example, taxes can only be imposed for the purpose of benefiting the public. The law governing that rule, must be clear and easily understood. Many citizens may also be subject to court actions in regards to a collection of taxes due from that individual. If the person reasonably believes that the taxes are not their responsibility, they are entitled to have their case heard according to the rules of due process.

The implications of due process are important for every citizen and entity in the united States. Due process ensures that everyone has the right to be heard by the courts. For tax laws, the many disputes involved, including those that relate to the commerce clause, are often heard in collection due process hearings. The implications of such hearings can often have a large effect on individual tax payers and on businesses. If you need legal advice and assistance, contact tax lawyers.

 

Role of the Federal Court System

Role of the Federal Court System

The Federal Court system has repeatedly interpreted the Commerce Clause, usually in favor of allowing each state to  impose a tax on companies that do business in that particular state. Congress has been granted the authority to make those determinations. However, there have been many challenges of authority over the Commerce Clause.
For example, there was a case regarding a ban on access for trucks on local roads in New Jersey, unless they were beginning or completing business in that state, was overruled in the Federal Court system. The ban was overturned because the Federal Court system determined that the ban violated the Commerce Clause. In effect, the ban was a discrimination against interstate commerce and only rewarded companies that did business in the state of New Jersey. Therefore, companies that did business in New Jersey, were able to utilize a more speedy route through local roads, simply because they conducted business in the state.
The Federal Court system has consistently referenced the Commerce Clause to  prevent a state from discriminating against a company that conducts business in other states. The Federal Court System has determined that  behaviour which discriminates against a company  based on the states in which they conduct business, is detrimental to the nation as a whole. For example, states that offer better benefits to businesses, may steal businesses from other states based on the benefits provided by one state. That practice does not benefit the Nation. 
There are enumerable other cases, in which the Federal Court system has made similar decisions,which  have greatly influenced commerce across the Nation. There have been cases in which the Federal Courts system has granted Congressional power to individual states to regulate business simply because items used in their business originated in other states, crossed state lines and made that business an interstate business.
The Federal Court system utilizes the Commerce Clause to protect each business’s freedom to conduct business in any state, without prejudice. Any business has the right to take part in business transactions across the country, without being penalized for conducting that business. In addition, the Federal Court systems also has the power to regulate any practice which can effect interstate commerce. 
In other words, no state has the power to prevent a business from utilizing services in that state, in order to conduct their business, even if the business is another state. Ultimately, the Commerce Clause is constantly interpreted by the Federal Court system in order to ensure that each business in the country, has an equal opportunity to conduct business, for the benefit of the Nation as a whole.

State and Federal Constitutional Constraints

State and Federal Constitutional Constraints

Uniformity and Equal Protection Clauses: 

The Uniformity and Equal Protection Clause can be utilized in many constitutional arguments. For taxes, the clause ensures that no individual, or entity is singled out for excessive taxation based on discrimination. Conversely, it forbids excluding an individual, or entity, from being responsible for taxes, except in certain circumstances. There are those that are exempt from taxes, such as churches and non profit organizations. Uniformity of taxes ensures that each taxpayer shares the responsibility for the tax burden, since each taxpayer enjoys the public benefits that are paid for by taxes. 
The Clause does not mean that each tax payer is responsible for the same amount, or percentage of taxes, it simply ensures that each individual is responsible for taxes. However, no taxpayer can be responsible for an unreasonable amount of taxes, based on discrimination or prejudice. Individuals and entity’s must all be responsible for the tax burden, regardless of factors that may set them apart from others. For example, a company that conducts business on a certain item, such as gold, can not be discriminated against because they do not sell silver. In other words, companies can not be responsible for a differing amount of taxes based on what type of commerce is pleasing to the citizens or government within a jurisdiction.
Implications of Due Process on Tax Law:
Citizens are entitled to challenge any tax that they believe is unfair, in violation of the constitution, or a tax that they believe that they are not responsible for. For example, a citizen is entitled to protest a tax assessment on personal property.  Citizens are entitled to due process, which includes a speedy trial on issues before the court. Due process allows citizens to challenge the state, or federal government when they feel that they are being treated unfairly. 
Frequently, the decisions in such cases are sited as case law. That way, the courts can sometimes prevent many cases of the same nature, from clogging up the courts. For instance, it is not necessary for many plaintiffs to challenge the same state tax. Only one case is necessary in order for the courts to grant a decision. However, citizens that do not agree with the decision, can challenge that decision or seek to appeal that decision. In addition, plaintiffs can appeal a higher court in order to have that court make a decision. Higher courts can decided whether or not to hear that case. Often, the case will be heard if the decision by a lower court was controversial or against government policy.
Commerce Clause: 

The Commerce Clause allows congressional control over issues of commerce. In addition, the each state is granted control over specific issues that related to commerce. Congress has the power to make decisions about commerce between states, Indian Tribes and foreign Nations. The scope of that control has often been challenged in courts. Decisions made by the courts have upheld Congressional control over issues of commerce, including taxation. However, the states have been granted some individual control over some issues of commerce, including taxation of companies that do business in their state. 
Conversely, the courts have determined that states do not have the power to prevent companies from doing business in their state, or to prevent a company form doing business in another state. For example, a NJ ban on truck drivers using local roadways when they were not conducting business in NJ, was overturned. The ban would prohibit truck drivers from taking the speediest route, which prevented them from conducting business in the most effective manner. Neither congress, or any state government, may make determinations that can adversely effect a business or the Nation as a whole.

State Constitutions and Public Purpose Requirements

State Constitutions and Public Purpose Requirements

Each state in the United States has its own state constitution which operates under the federal constitution. The public-purpose doctrine is a provision that is present in almost all of the state constitutions. This doctrine’s main purpose is to put certain restrictions on how the government spends the public’s tax dollars. 
It prohibits the use of public monies from being used for anything but public purposes. It is intended to limit the government from paying taxpayer money to private corporations for some other gain. However, while the doctrine is meant to protect public monies, it is not entirely clear, and it has sparked controversy about what is considered to be “public purposes”.
There are several landmark court cases that shaped the meaning of the public-purpose doctrine. In Sharpless v. Mayor of Philadelphia (1853), the dispute centered around the city of Philadelphia using taxpayer money to purchase stock in railroad companies. The court ruled in favor of the city because it determined that the railroads provided a “public service” of transportation, and was therefore benefiting the public. 
Bay City v. The State Treasurer, 1871, overruled this judgment declaring it unconstitutional to give taxpayer money to the railroads because it is considered paying public money to a private corporation. In Loan Association v. Topeka, 1874, the city government was providing bonds to a business in order to encourage that business to locate itself in the city of Topeka. The government argued that this would in turn bring more jobs and income to the city. The court also ruled in favor of the public-purpose doctrine in this case declaring the city government’s actions unconstitutional because the investment was not for a public purpose.
The public-purpose requirement is meant to restrict the government’s use of taxpayer money from profiting private enterprises and reserving the use of this money only to properly serve the public. However, because the definition of this doctrine can be so widely interpreted, it is difficult to determine whether an investment actually functions to serve the public or not. The danger in this lack of specificity is that the government may use this to their advantage. For example, a city government may provide funds to a private hospital and justify the expenditure by claiming it will provide additional jobs to the public, but this is still considered providing public monies to a private company. This can be seen in subsequent court cases where the rulings have allowed the government to fund private enterprises.
In 1980 an Oregon city was accused of using income from taxpayers to promote private industries when it constructed a parking garage and provided free advertising to local businesses. However, the court ruled in Jarvill v. City of Eugene, that the city was benefiting its economy and therefore providing a public service. 
The ruling of the 1984 Bowling v. Brown case further compromised the effectiveness of the public-purpose doctrine by declaring it legal to provide public money to a private organization, as long as it somehow benefited the public. Although the early cases were specific as to prohibiting the use of taxes for this private gain, many later cases have allowed this to happen making the public-purpose doctrine less effective. 

What You Should Know About the Commerce Clause?

What You Should Know About the Commerce Clause?

Background: 

The Commerce Clause allows congress to have control over commerce within each state, with a foreign state and among Indian Tribes. However, Congress does grant each state the ability to make certain rulings on taxation of commerce. For example, a state may make determinations about the taxation of manufacturing within that state, but not other issues of commerce.  The state is entitled to do so as long as the tax is free of prejudice and not does not discourage business.
In essence, a state may not impose taxes that are detrimental to the nation. In fact, no state, or member of congress, may make allowances for taxation, or other issues of commerce, that could hurt the country. The power granted to congress in the Commerce Clause has consistently been upheld by the courts. However, the Clause, and issues of taxation stemming form it, are continuously challenged in court. The Commerce Clause can be applied to any issue of commerce, but has been utilized frequently to make determinations about issues of taxation of commerce, including the conditionality of certain taxes imposed by each state.
Congressional Power: 

According to the Commerce Clause, Congress has the authority to make determinations about all issues of commerce. Those issues of commerce may pertain to any state, Indian Tribe, or foreign trade. Congress was granted that authority in order to prevent state governments from abusing their ability to tax commerce within a state. Congressional power has often been called upon in order to decide certain issues of commerce, even commerce that strictly takes place within one state. 
Although the ability for congress to make determinations about intrastate commerce has been challenged, that right has been upheld. Intrastate commerce can effect the Nation in the same way that interstate commerce can, and therefore those determinations are allowed by the Commerce Clause. No act of commerce is permitted to be detrimental to the nation or to be based on discrimination. For example, a state may not impose higher taxes on gun manufacturers simply because a state’s politics suggest that citizens are inherently opposed to guns. The state does have the right to tax that commerce, but not in an excessive, or discriminatory manner. 

Role of the Federal Court System: 

The Federal Court system hears cases that challenge issues of commerce, including challenges to the Commerce Clause. There have been cases that challenged the Commerce Clause on issues where states have imposed taxes on commerce. For example, cases like Complete Auto Transit v. Brady, allowed the Federal Courts to make determinations about a states control over taxing a company that conducts business in more than one state, and is headquartered in only one state. 
The Company challenged the states authority to impose such a tax but the courts ruled the the tax was allowed by the Constitution. Mississippi was legally allowed to impose a tax on a company, for granting that company the privilege of being able to conduct business in Mississippi. The taxes were valid because that company enjoyed benefits in the state that were funded through taxation and therefore, the company should be required to shoulder some of the burden of taxation. Any disputes about issues of commerce, including taxation, are heard by the federal courts because of congressional authority over commerce.

“Dormant” Commerce Clause: 

The Dormant commerce clause grants each state the ability to control certain issues that relate to commerce, such as manufacturing. Congress may not interfere in state taxation issues, unless they are in violation of the commerce clause, or other constitutional principles. 
The Dormant Commerce clause grants each state the ability to impose taxes in cases where a company conducts business in a state, or is headquartered in a state. While congress has the authority over commerce issues, even when the business is intrastate, states do have limited power over such matters. However, due process allows any individual or entity to challenge those determinations. Cases that make challenges to the Commerce Clause, are often heard in Federal court.
Complete Auto Transit v. Brady: 

Mississippi imposed a tax on Complete Auto Transit after they began to transport vehicles through the state. In addition to transporting vehicles through the state, they also delivered vehicles to businesses in the state. Mississippi declared that Complete Auto Transit owed a state tax based on the company enjoying the benefit of conducting business in the state.  
The company challenged Mississippi in court, declaring that the tax was a violation of the Commerce Clause, which did not allow for taxation on interstate commerce if it would discourage business, or if it was discriminatory. Taxes based on discrimination, such as a business being based in another state, were thought to be in violation of the Commerce Clause. However, the court’s decision reaffirmed each states ability to impose certain commerce taxes, as long as the taxes were not detrimental to the Nation. Taxes that were considered detrimental to the nation, were those that prohibited companies from conducting business, or those that discouraged business in certain jurisdictions.

Complete Auto Transit v. Brady

Complete Auto Transit v. Brady

Complete Auto Transit was a company that transported vehicles between states. Mississippi was one state that the company travelled through, and one in which they delivered vehicles. Mississippi levied a tax on Complete Auto Transit because they were taking part in interstate and intrastate transit. The tax was based on the “privilege of doing business in the state.”
Complete Auto Transit was based in Michigan and was obviously conducting interstate business. However, they disagreed with the tax and took the case to court. Complete Auto Transit v. Brady, included a ruling that would change interstate and intrastate transit forever. The courts ruled that companies that conducted business in more than one state, should be responsible for a portion of each state’s tax burden.
Complete Auto Transit v. Brady set a precedent for other states to begin charging a similar tax.  However, it has been claimed that  the decision in Complete Auto Transit v. Brady, may violate the Commerce clause because of the tax on interstate activity.  Similar taxes are continuously challenged in courts. Many companies insist that those taxes are not allowed because of the Commerce Clause. In fact, those taxes may discourage companies from conducting business in more than one state. 
The ruling in Complete Auto Transit v. Brady, laid out specific rules for taxes on interstate commerce. Business conducted must be connected to the state that is imposing the tax. In other words, the tax can not be imposed on business conducted in another state.Those taxes must be fair and apply to all business in the same manner. The taxes must not discriminate against any type of company, or individual. 
Complete Auto Transit v. Brady, demonstrated the ambiguity of the Commerce Clause. The clause can be interpreted in number of ways, in order to benefit the individual that is interpreting the clause. In this case, Mississippi claimed that they were simply imposing a sales tax. However, it was seen by many, including the company, as a privilege tax, imposed simply for having the privilege of doing business in that state. A similar ruling was seen in Commonwealth Edison v. Montana. In both cases, the courts ruled that companies doing business in any state, would be responsible for a portion of the tax burden because they received services from that state, such as police protection. Contributing to a state,s tax burden, is meant to finance any benefits a company received while conducting business in that specific state.

How Congress Can Interpret the Commerce Clause

How Congress Can Interpret the Commerce Clause

The Commerce Clause grants Congress control over issues of commerce in all states, among Indian Tribes and with Foreign Nations. However, there was a determination made that not all issues of commerce are decided by Congress. Congress does not have absolute control over all commerce issues. Each state has some ability to decide certain issues such as taxation on out of states companies that do business in that state. Ultimately, the Federal court may make final determinations if taxes are challenged, or if decision making power is challenged.
The Commerce Clause, as part of the constitution, prohibits taxation, or other issues that relate to congress, from being determined based on discrimination or an act or prejudice. The Uniformity and equal protection clause is meant to ensure that no individual, or business get any unfair advantage due to differing treatment. To do so, would be bad for the nation. Competition is based on each companies ability to compete in a manner that begins with equality and continues with no unfair advantage due to tax breaks. Each state must grant all companies the ability to use  services within each state, but may require that company to pay taxes for that benefit. 
The dormant commerce clause was clearly utilized to grant each state some control over certain issues of commerce, such as manufacturing. The federal court system has made many determinations regarding the separation of power and control between each states government and the federal government. For example, Complete Auto Transit v. Brady, had a huge impact on each states ability to tax businesses from other states, that conduct business within another state. Interstate commerce was determined to be taxable by any state in which business was conducted. 
That decision was based on the fact that companies conducting business within a state, enjoy benefits and services within that state and should shoulder some responsibility for the tax burden associated with those services.
The scope of Congressional power over issues of commerce, has been tested and upheld. That power is in place to ensure that companies within the nation, are able to conduct business in a fair manner, without discrimination. The Commerce Clause can prevent monopolies, or price fixing, because competition is encouraged through equal protections against discrimination. 
The balance of the power to impose taxes on business, between each state and congress, has allowed businesses in the nation to flourish and expand. Therefore, it can be said that the Commerce Clause also protects jobs by ensuring that each business is more likely to maintain, or increase employment, by having fair competition.
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