income tax

Maryland State Comptroller of the Treasury v. Wynne

Issues

Does a state tax scheme violate the United States Constitution by taxing all resident income earned in-state and out-of-state and requiring residents to take out a credit against taxes paid on income earned in other states?

In this case, the Supreme Court will have the opportunity to address whether a state may tax its residents’ out-of-state income where the state in which the resident earned the income has already taxed the resident’s income earned in that state. The Maryland State Comptroller of the Treasury claims that the Supreme Court has recognized a state’s right to tax all of its residents’ income, whether earned inside or outside of the state, and even where the result is multiple taxation of the same income. Notwithstanding that, the Wynnes argue that Maryland’s tax scheme unduly burdens interstate commerce—and thereby violates the Commerce Clause—because it does not offset that multiple taxation through a credit, or otherwise. The Court’s ruling will determine the constitutionality of so-called “double taxation” schemes in light of a state’s sovereign power to tax its residents as well as constitutional requirements against discriminatory tax schemes.

Questions as Framed for the Court by the Parties

Does the United States Constitution prohibit a state from taxing all the income of its residents-wherever earned-by mandating a credit for taxes paid on income earned in other states?

In 2006, Respondents Brian and Karen Wynne owned 2.4% of the stock in Maxim Healthcare Services, Inc. (“Maxim”), a national healthcare services company classified as an S corporation in Maryland. See Maryland State Comptroller of the Treasury v. Wynne, 431 Md. 147, 158 (Md. Ct. App.

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PPL Corporation v. Commissioner of Internal Revenue

Between 1984 and 1996 the Government of the United Kingdom privatized 32 state-owned utility companies. The Government then instituted a one-time twenty-three percent tax, called a "windfall tax," on the privatized companies based on the difference between each company's profits and sale price. Petitioner PPL Corporation, an energy company, owned a 25 percent share of one of the utility companies that the Government of the United Kingdom privatized. After PPL Corporation paid the tax, it filed a tax claim with the Internal Revenue Service, asserting that PPL Corporation was eligible for a foreign tax credit under Internal Revenue Code § 901, but the Internal Revenue Service denied PPL Corporation's claim. PPL Corporation argues that the windfall tax targets income and therefore qualifies PPL Corporation for credit under § 901. PPL adds that the calculation of the tax involves the value of the company’s net gain. The Commissioner of Internal Revenue argues that the tax is not a tax on income per se but rather a tax on the value of a company. The Commissioner adds that the calculation of the tax measures the ability of a company to generate income. A holding for PPL threatens to undermine the consistency and uniformity of the U.S. tax code as well as curtailing the power of the Commissioner of Internal Revenue to interpret the law. However, a holding for the Commissioner may subject taxpayers in PPL’s position to double taxation.

Questions as Framed for the Court by the Parties

To avoid double taxation, section 901 of the Internal Revenue Code allows U.S. corporations a tax credit for income, war profits, or excess profits taxes paid to another country. This case involves application of section 901 to a "windfall tax" imposed by the United Kingdom. Although it is undisputed that the tax's practical effect is to impose a 51.75% tax on the "excess profits" certain companies earned in the four years after they were privatized, the Third Circuit-at the Commissioner's urging-deemed the tax non--creditable because the U.K. statute nominally taxes the difference between two numbers, one of which is driven exclusively by profitability during the four-year period, rather than nominally taxing the profits themselves. In a case arising out of the same U.K. tax, same tax court proceedings, and same evidentiary record, the Fifth Circuit reached the opposite conclusion and affirmed the Tax Court's considered view. Recognizing that it was creating a clear circuit split, the Fifth Circuit affirmed that courts must look beyond the form and labels of a foreign tax statute and consider the tax's practical operation and intended effect when determining whether it is creditable for U.S. tax purposes.

The question presented is:

Whether, in determining the creditability of a foreign tax, courts should employ a formalistic approach that looks solely at the form of the foreign tax statute and ignores how the tax actually operates, or should employ a substance based approach that considers factors such as the practical operation and intended effect of the foreign tax.

Issue

Should a U.S. company receive U.S. tax credit for paying the United Kingdom’s windfall tax?

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Rodriguez v. Federal Deposit Insurance Corp.

Issues

Should state law or federal common law principles govern the ownership of a tax refund paid to a corporate parent, but solely attributable to a corporate subsidiary, as part of a consolidated tax return?

This case asks the Supreme Court to determine whether state law or federal common law principles govern the ownership of a tax refund solely attributable to a single corporate subsidiary but received from the IRS by that subsidiary’s corporate parent as part of a consolidated tax return. Petitioner Simon E. Rodriguez, Chapter 7 Trustee for the bankruptcy estate of United Western Bancorp., Inc., contends that this area of law is not open to federal common lawmaking and thus should be governed by state agency law. Respondent Federal Deposit Insurance Corporation, Receiver for United Western Bank, counters that the issue here is not governed by federal common law in the strict sense, but rather by interpretations of Internal Revenue Service regulations that inform private party contract interpretation. The outcome of this case will have implications on the equitable ownership interests of tax refunds issued to corporate parents on behalf of their subsidiaries as part of consolidated tax returns.

Questions as Framed for the Court by the Parties

Whether courts should determine ownership of a tax refund paid to an affiliated group based on the federal common law “Bob Richards rule,” as three circuits hold, or based on the law of the relevant state, as four circuits hold.

On January 1, 2008, United Western Bancorp, Inc. (“UWBI”), a bank holding company, entered into a Tax Allocation Agreement (“the Agreement”) with its affiliate subsidiary corporations, including its principal subsidiary, United Western Bank (“Bank”). Rodriguez v.

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