Published in State Tax Notes | February 16, 2016
by Eric Yauch & Amy Hamilton, Tax Analysts
The death of Justice Antonin Scalia deprives the U.S. Supreme Court of a strict constructionist and a gifted writer who could look at a state tax case concerning the dormant commerce clause and find judicial fraud, incoherence, and “ad hocery.”
While Scalia’s most memorable opprobriums are to be found in such epochal cases as those involving the Affordable Care Act (think “pure applesauce” and “interpretive jiggery-pokery”), he didn’t hesitate to use stinging prose elsewhere.
“The clearest sign that the negative Commerce Clause is a judicial fraud is the utterly illogical holding that congressional consent enables States to enact laws that would otherwise constitute impermissible burdens upon interstate commerce,” Scalia said in a dissent in Comptroller of the Treasury v. Wynne (Doc 2015-11807). “How could congressional consent lift a constitutional prohibition?”
University of Connecticut law professor Richard Pomp told Tax Analysts that Scalia’s views on the dormant commerce clause reached their zenith, or nadir, depending on one’s view, in Wynne.
Pomp said Scalia contrasted the clause with the “real Commerce Clause,” described it as a “judicial fraud,” as the “Synthetic Commerce Clause,” as “judicial economic veto,” and as “incoherence,” and as lacking a “governing principle” and illustrating the Court’s “ad hocery.”
“Sadly, we will never learn why he was willing to strike a tax down under the dormant commerce clause if it could not be distinguished from a tax already held unconstitutional under that clause (in a presumably incorrect decision),” Pomp said. “Justice [Clarence] Thomas is now the sole justice who does not believe in the dormant commerce clause.”
On the bench, Scalia famously peppered advocates with questions, livening a process described as sleepy before he joined the Court. But he may be best known for his judicial philosophy, originalism, which limits constitutional interpretation to what the Framers intended it to mean when the Constitution was adopted in 1787.
Often Scalia would claim that if not explicitly stated in the Constitution, a right didn’t exist. While the philosophy was often in the limelight for its rejection of the right to privacy and the position that the EighthAmendment’s bar on cruel and unusual punishment did not apply to torture, Scalia’s approach also affected state taxation.
In U.S. v. Carlton (2014 STT 74-49), the Court in 1994 upheld Congress’s retroactive legislation limiting an estate’s deductibility of proceeds from the sale of certain stock on substantive due process grounds. The problem for Scalia, however, was that the Constitution never mentions a distinction between procedural and substantive due process.
“If I thought that ‘substantive due process’ were a constitutional right rather than an oxymoron, I would think it violated by bait-and-switch taxation,” Scalia said in a concurring opinion.
Scalia said the Court’s justification for upholding the retroactive law was based on a standard made up by the Court that guaranteed that all retroactive state tax laws would henceforth be valid.
“I would follow the text of the Constitution, which sets forth certain substantive rights that cannot be taken away,and adds, beyond that, a right to due process when life, liberty, or property is to be taken away,” he added.
Scalia’s writing also came up in the context of Michigan’s retroactive repeal of the Multistate Tax Compact to avoid paying more than $ 1.1 billion in refunds to out-of-state businesses. Practitioners expressed concern that there’s no limit to the constitutionality of a state’s retroactive application of tax laws if protecting the state’s budget from the revenue hit of paying out refunds always serves a legitimate public purpose.
Erica Horn of Stoll Keenon Ogden PLLC said Scalia made that very point in his concurring opinion in Carlton when he wrote, “The reasoning the Court applies to uphold the statute in this case guarantees that all retroactive tax laws will henceforth be valid. To pass constitutional muster the retroactive aspects of the statute need only be ‘rationally related to a legitimate legislative purpose.'”
Horn said that to her knowledge, the Court hasn’t taken a retroactivity case since Carlton. “Therefore, Justice Scalia didn’t get another chance to weigh in,” she said.
“I’d say there is little doubt but that his prediction has come true — the vast majority of state courts that have considered retroactivity have found the alleged harm to the state treasury to be reason enough to deem the retroactive statutes constitutional,” Horn said.
She added that she hasn’t read the briefs filed by taxpayers in the state retroactive cases, but that “it certainly would have been apropos” if they had quoted Scalia.
And Scalia repeatedly rejected the dormant commerce clause, calling it “imaginary” during oral arguments last term in Wynne. The Court ultimately held that under the dormant commerce clause, Maryland had to provide a full credit for taxes paid to other states. (Prior coverage (Doc 2015-11808).)
“The fundamental problem with our negative Commerce Clause cases is that the Constitution does not contain a negative Commerce Clause,” Scalia said in his Wynne dissent. “It contains only a Commerce Clause.”
Later in the dissent, Scalia pointed out three glaring errors he saw in using the dormant commerce clause to strike down a state tax scheme: the lack of a governing principle in the field, the clause’s instability, and the incompatibility of “synthetic commerce clause” cases with the judicial role.
Under the headline “You Know Scalia’s Right,” (Doc 2015-11979) Tax Analysts Deputy Publisher David Brunori dissected Scalia’s dissent and called it “by far the most interesting and entertaining” part of the Wynne decision.
Brunori received a lot of feedback on that column. “The state liked it,” he said. “Others, not so much.”
“I think whatever your view on Scalia — and he was controversial — he certainly made everyone think about the dormant commerce clause,” Brunori said. “I think he was right. The dormant commerce clause is a legal fiction. That alone is controversial because the Court has always gone beyond the text of the Constitution on important issues like the right to privacy.”
In the days following Wynne, Joseph Henchman of the Tax Foundation floated the radical notion of Congress passing a law to clarify ambiguity in state tax.
In a blog post headlined “The Limits of State Tax Powers:AModest Reply to Justice Scalia,” Henchman wrote that Congress could answer Scalia and Thomas by codifying the dormant clause doctrine, and he provided federal statutory language based on the Complete Auto decision.
Henchman said that on the dormant commerce clause, Scalia was one of two justices who believed the Constitution commanded Congress to deal with state tax issues, and not the Court.
“It was a typical Scalia argument — challenging 200 years of precedent and upsetting settled expectations because of a strict constructionist argument that had much truth to it,” Henchman said. “It’s not a doctrinaire conservative thing. Justice [Samuel] Alito, whom I think many people see as very similar to Justice Scalia, is a strong believer in enforcing constitutional limits on the scope of state tax power.”
Scalia’s wit, while often cutting, also had a puckish side.
Walter Hellerstein, who served on the University of Chicago Law School faculty with Scalia and argued before him on two occasions, said he has fond memories of the justice and his wit.
“When I was a young law professor at the University of Chicago, my wife and I were at a cocktail party with then-Professor Scalia, who was well on his way to having nine children, and when someone asked him, ‘Do you have a child in 3rd grade?’, my wife heard him reply, ‘I must.'”
Hellerstein also recounted arguing Hunt-Wesson Inc. v. Franchise Tax Board before the Court when Chief Justice William Rehnquist interjected to correct his pronunciation of the Beatrice Company. Hellerstein told Tax Analysts that he immediately promised to use Rehnquist’s pronunciation “for the balance of my argument.”
Scalia chimed in, “Good move, counsel.”
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