Archive for the ‘Supreme Court’ Category

States Can Give Preferential Treatment to Their Own Muni Bonds

Monday, May 19th, 2008

The Supreme Court ruled today in Dept. of Revenue v. Davis that states can give preferential treatment to their own municipal bonds (over those of other states). Thus, the practice of paying state income tax on out-of-state municipal bonds will continue. The Supreme Court ruling was fractured, with Justice Souter’s opinion, four concurring opinions, and two dissenting opinions.

The main impact of this decision is that municipal bonds will tend to be purchased by individuals who reside in that state, so that they can obtain the largest tax impact. The decision is good news for California, as a decision that would have invalidated preferential treatment would have likely cost the state millions of dollars in additional interest.

Link to previous coverage of this case on Taxable Talk

Tax Professors: Kentucky Will Win

Tuesday, November 6th, 2007

As I noted, yesterday the Supreme Court heard oral arguments in Kentucky Department of Revenue v. Davis. Today, the TaxProf Blog has the views of Professors Gregory Germain of Syracuse University and Bradley Joondeph of the University of Santa Clara. They both believe that Kentucky will prevail.

You can read their opinions here.

Supreme Court Hears Arguments in Davis Case

Monday, November 5th, 2007

The Supreme Court heard arguments in Kentucky Department of Revenue v. Davis today. The Scotusblog has a good discussion of the arguments that were made today.

The case, as I’ve mentioned before, is on whether or not states can favor their own municipal bonds and grant them tax-exempt status while not granting tax-exempt status for out-of-state municipal bonds.

A decision will likely not be announced until early in 2008.

Municipal Bond Interest, California, and the Supreme Court

Monday, September 3rd, 2007

As I mentioned previously, the Supreme Court will hear Department of Revenue v. Davis this Fall. If the Supreme Court rules for the Kentucky Department of Revenue (overturning the Kentucky Court of Appeals), then nothing will change, and states will be able to continue discriminate in favor of their own municipal bond interest for tax deductions. However, if the Court upholds the decision, then states will have to choose between taxing no municipal bond interest and taxing all municipal bond interest.

California allows taxpayers to file protective claims on issues that have not been decided. This is one such issue. I hadn’t advised clients to file such claims yet because the Franchise Tax Board wasn’t ready. Indeed, the FTB denied such claims. If you filed such a claim, and it was denied and the status is final, you must appeal to the State Board of Equalization or you will lose your claim.

The FTB is no longer denying such claims, and is now accepting protective claims. If you are impacted by this issue, and wish to file such a protective claim, you can do so by mailing such claims to:

PO BOX 942867
SACRAMENTO CA 94267-2222

Make sure you note that you are filing a protective claim on the “Department of Revenue v. Davis” decision. Any client who feels that they are impacted by this should contact our office so we can advise them on this issue.

Muni Bonds After “United Haulers”

Thursday, July 5th, 2007

As I mentioned in May, the Supreme Court will be looking at the taxing of municipal bonds later this year (Department of Revenue v. Davis). There’s an interesting article that I found that analyzes what the Supreme Court will likely do; “Muni Bonds and the Commerce Clause After United Haulers.”

The law professors who wrote this article, Ethan Yale and Brian Galle, conclude that the Supreme Court will not overturn the Kentucky Court of Appeals ruling that taxing out-of-state municipal bonds while not taxing in-state municipal bonds is unconstitutional. The article is quite interesting; those with an interest in the case should read it.

Of course there’s a huge caveat—trying to guess what the Supreme Court will do is very difficult.

A Big Case for the Supreme Court Later this Year

Monday, May 21st, 2007

The Supreme Court doesn’t decide many tax cases. They’re usually not that interesting, and it’s rare to see a split among the different circuits in a tax issue. However, a very important tax case will be decided in the next Supreme Court term (beginning in October): Department of Revenue v. Davis.

In 2006 the Kentucky Court of Appeals (the Kentucky Supreme Court declined to hear the case) held that, “…[W]e find that Kentucky’s tax on the income derived from bonds issued outside Kentucky violates the Commerce Clause of the United States Constitution, we vacate and remand.”

Why is this important? If you live in a state with a state income tax, and you own municipal bonds issued by your state, you do not pay income tax on those bonds. However, if you own bonds issued by another state you almost certainly do pay income tax on those bonds. The Kentucky ruling says that’s illegal—it violates the dormant commerce clause of the U.S. Constitution.

To no one’s surprise, the National Association of State Treasurers doesn’t like this ruling; they will be filing an amicus brief on the case. The Kentucky Department of Revenue doesn’t like the ruling; it will cost the state money. Indeed, high tax states (and Kentucky is not one of those) like this ruling even less. If the Court of Appeals ruling is upheld, bonds issued by high tax states (such as California) will need to pay a higher interest rate, costing the states money.

The case will be heard late this year; a decision isn’t likely to be announced until early 2008. If you own municipal bonds from a state other than your own, pay attention to the decision. If you paid enough tax from these bonds and the ruling is upheld by the Supreme Court, you may be able to amend your state tax return seeking a refund of tax.

The TaxProfBlog has more on this case, and you can find news stories at Bloomberg and elsewhere.

Hat Tip: TaxProfBlog

Tax Court Releases Clarifying Statements in Kanter Case

Thursday, July 21st, 2005

According to Tax Analysts, the Tax Court has released clarifying statements in the Kanter and Ballard cases. However, the statements are not available on the Tax Court’s website.

Tax Analysts is reporting that Chief Judge Joel Gerber released statements outlining the procedures followed in the cases. The Supreme Court in March ordered the Tax Court to release the original findings of Special Trial Judge Couvillion.

Tax Court Lifts Veil

Tuesday, July 12th, 2005

As I previously noted, the Tax Court had a secrecy rule that prevented, in certain circumstances, litigants from knowing what the judge felt the ruling should be. This “star chamber” provision became clear when the Kantar case was decided by the US Supreme Court earlier this year.

Luckily, previously is also the place where that oderous rule has been placed—the junk yard of history. As noted in this article in the Chicago Tribune and this article in the International Herald-Tribune (likely appearing in tomorrow’s New York Times), the rule has been rescinded as a direct result of the Supreme Court’s ruling. However, its’ status as to past cases is unknown.

This is one rule change that is definitely for the better.

Psssst: I’ve Got a Secret…

Monday, June 27th, 2005

After being gone over the weekend, I discover that the World’s Greatest Newspaper (the Chicago Tribune) ran a story on the infamous Kanter case. In this case, the US Tax Court’s Chief Judge apparently reversed the finding’s of the trial court judge—for no apparent reason. Earlier this year the Supreme Court ruled that the trial court’s ruling be made public. Under a 1984 Tax Court rule, the trial court’s ruling is not made public.

The Tribune has had two articles about this ruling. The first, on June 24th, features the classic line from Julie Roin, a law professor at the University of Chicago, “How could the tax court judges essentially lie about what was in the report?” The second article, on June 25th, has the comment of the current Chief Judge of the Tax Court, Joel Gerber, that no judge on the Tax Court will comment on the case.

You can find the Supreme Court’s decision here (the case is Ballard v. Commissioner).

Now, courts are supposed to have transparency in their actions. The Tax Court, today, doesn’t. Hopefully this ruling, and the associated publicity, will impact the Tax Court’s policies. I’m not holding my breath (again).

Thanks to the TaxProf Blog and Roth and Company’s Tax Updates for the heads-up.