Supreme Court hears arguments on privileges and immunities and foreign taxes

Supreme Court hears arguments on privileges and immunities and foreign taxes


[JURIST] The US Supreme Court [official website] heard oral arguments [day call, PDF] in two cases on Wednesday. In McBurney v. Young [transcript, PDF; JURIST report] the Court considered, under the Privileges and Immunities Clause [text] of Article IV of the US Constitution, if a state can bar an out-of-state resident from accessing public records normally obtainable by a state resident. The court will also analyze this question under the dormant commerce clause [Cornell LII backgrounder]. In this case, Mark McBurney attempted to utilize Virginia’s Freedom of Information Act [text], although he is not a Virginia state resident. The act prevents non-state residents from accessing certain state records. McBurney argued that this provision is discriminatory, largely against out-of-state businesses who seek records within Virginia. “[T]he modern transparency laws are new, but they sit on top of well-established common law rights to access that are based not on modern notions of transparency but on the right to secure property and other basic interests.” The Solicitor General for Virginia argued that it was a cost-saving measure for the state to limit the number of requests, and that as the state is not discriminating against anyone, it is free to administrate the database as it pleases. Chief Justice Roberts at several junctures pointed out that he did not understand where the conflict was for either party, and that Virginia restricting the records seemed pointless. Later Justice Scalia commented, “[I]s it the law that—that the State of Virginia cannot do anything that’s pointless? Only the Federal Government can do stuff that’s pointless?”

The Court also heard arguments in PPL Corporation v. Commissioner of Internal Revenue [transcript, PDF; JURIST report] on how to analyze foreign taxes. PPL Corporation is attempting to qualify for a foreign tax credit for paying a “windfall tax” in the United Kingdom, where they own a 25 percent stake in a utilities company. It’s attorney, Paul Clement, argued for a traditional, formalistic approach to evaluate the windfall tax, which the he argued imposed double taxation on PPL as the windfall tax was evaluated as a tax on “value” rather than a tax on profits, although it determined value solely by surveying profits.

But again, that is classic excess profits tax. So let me try to come at it this way, which is to say, suppose you had a country that had a tax that said, we are going to tax your value and we are going to measure your value based on the income you made in the last year or the last 2 years.
Now, I would say that that is clearly a creditable income tax. If they said the same thing—we are going to tax your value and we are going to calculate your value based on your income over the last 2 years, but we are going to subtract 10 percent of your market cap—that would be an excess profits tax.
The market cap would be different for every company, so there would be another thing that was different for each company, and the effective rate might be different but that’s okay because that’s how an excessive profits tax works.

The Solicitor General argued against this understanding. “The windfall tax is not an income tax. It is a tax on an increment of company value. A company’s profits multiplied by a price to earnings ratio is a typical way of imputing a value on a company. Using profits as one variable in that valuation formula does not transform a tax on company value into an income tax.”