tax

Alabama Department of Revenue v. CSX Transportation, Inc.

Issues

Does a state discriminate against railroads when competing forms of commercial transportation are exempt from a diesel fuel tax that remains applicable to rail-based carriers?

This case presents the Supreme Court with an opportunity to resolve whether federal legislation to promote interstate commerce would override a state’s right to determine how to tax competing industries. The Alabama Department of Revenue (“ADR”) argues that state taxation is entitled to deference from the courts, so long as a state provides a justification for why its taxing plan for one industry differs from that of a competing industry. CSX Transportation, on the other hand, argues that the ADR’s differentiated tax plan is discriminatory when applied to its direct competitors, and that the tax plan therefore inhibits interstate commerce. This case will ultimately decide the extent of state discretion in designing state tax codes pertaining to different industries. 

Questions as Framed for the Court by the Parties

Whether a State “discriminates against a rail carrier” in violation of 49 U.S.C. §11501(b)(4) when the State generally requires commercial and industrial businesses, including rail carriers, to pay a sales-and-use tax but grants exemptions from the tax to the railroads' competitors.

IN ADDITION TO THE QUESTION PRESENTED BY THE PETITION, THE PARTIES ARE DIRECTED TO BRIEF AND ARGUE THE FOLLOWING QUESTION: “Whether, in resolving a claim of unlawful tax discrimination under 49 U.S.C. §11501(b)(4), a court should consider other aspects of the State’s tax scheme rather than focusing solely on the challenged tax provision.”

In 1976, Congress enacted the Railroad Revitalization and Regulatory Reform Act, known as the 4-R Act. Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. § 11501. This act makes it illegal for a state to “impose a tax that discriminates against a rail carrier.” Id.

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BNSF Railway Co. v. Loos

Issues

Are damages for lost wages in a personal injury suit brought under the Federal Employers Liability Act taxable as “compensation” under the Railroad Retirement Tax Act?

In this case, the Supreme Court will decide whether time lost awards are taxable as “compensation” under the Railroad Retirement Tax Act. BNSF Railway Company argues that such awards are taxable because they fall within the employer-employee relationship, especially when the Railroad Retirement Tax Act is read in conjunction with the Railroad Retirement Act. Michael Loos counters that the plain text of the Railroad Retirement Tax Act does not include time lost awards in its definition of “compensation” and that regardless, Internal Revenue Code (“I.R.C.”) § 104(a)(2) excludes personal injury awards from taxation. The outcome of this case will determine the contours of the definition of “compensation” in the Railroad Retirement Tax Act as well as the extent to which the Railroad Retirement Tax Act and the Railroad Retirement Act should be interpreted as a unified statutory scheme.

Questions as Framed for the Court by the Parties

Whether a railroad’s payment to an employee for time lost from work is subject to employment taxes under the Railroad Retirement Tax Act.

Respondent Michael Loos (“Loos”) is a former employee of Petitioner, BNSF Railway Company (“BNSF”). Loos v. BNSF Railway Company at 3. During his employment with BNSF, Loos incurred a number of attendance policy violations, some of which Loos attributed to “flare-ups” of a workplace injury. Id. at 4–6. Due to repeated attendance policy violations, BNSF terminated Loos’s employment on November 29, 2012. Id.

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Direct Marketing Association v. Brohl

Issues

Does the Tax Injunction Act prohibit federal courts from hearing cases where a tax-exempt, out-of-state entity brings suit to challenge an in-state law that does not impose a tax on the exempt entity but does impose notice and reporting requirements?

The Supreme Court’s decision in this case will determine whether the Tax Injunction Act (“TIA”) prevents federal court review of the notice and reporting requirements imposed on tax-exempt entities through the Colorado Collection Act. The Direct Marketing Association argues that neither the TIA’s language nor Congress’s intent when writing the TIA support the proposition that the TIA bars federal court jurisdiction when a tax-exempt entity challenges a statute that imposes notice and reporting obligations on the entity but does not create an actual tax liability. Brohl counters that the TIA protects the notice and reporting obligations from federal review because those functions are essential to facilitate the collection of the use tax. The resolution of this case will implicate the role that federal courts have over state taxation matters.

Questions as Framed for the Court by the Parties

Whether the TIA bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, nor requires the collection of a tax, but serves only as a secondary aspect of state tax administration?

Colorado requires that all retailers pay a 2.9 percent tax on the sale of all tangible goods within the state. Direct Marketing Ass’n v. Brohl, 735 F.3d 904, 906 (10th Cir. 2013). The Commerce Clause and the Supreme Court’s decision in Quill Corp. v.

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Federal Unemployment Tax Act (FUTA)

Federal Unemployment Tax Act (FUTA) was the bill passed in 1939 that established a payroll tax to fund unemployment benefits. The tax is 6% of the first $7,000 that each employee makes in a year, and the employer is responsible for all of the tax unlike similar payroll taxes. For example, if XYZ Co. paid Tina $20,000, Jerry $7,000, and Patricia $5,000 last year, XYZ Co.

fiscal year accounting period

Fiscal year accounting period is defined as a period of 12 months that a company uses for its accounting purposes; for example, reporting its spending and income. It helps in preparation of company financial statements. It is measured by the first day of the month through the last day of the twelfth month. 

Florida Dept. of Revenue v. Piccadilly Cafeterias

Issues

Do the words "under a plan confirmed" apply to transfers of assets occurring prior to a bankruptcy court's confirmation of a reorganization plan?

 

Soon after Piccadilly Cafeterias, Inc. filed for bankruptcy under Chapter 11, it sought and received authorization from the Bankruptcy Court to sell its assets under Section 363(b)(1) of the Bankruptcy Code. Piccadilly also sought and received an exemption, pursuant to Section 1146(c) of the Bankruptcy Code, from Florida state tax on this sale. The Florida Department of Revenue objected to this exemption because the sale took place before the bankruptcy plan was confirmed. On appeal, the U.S. District Court for the Southern District of Florida and the U.S. Court of Appeals for the 11th Circuit affirmed the decision of the Bankruptcy Court to exempt asset sales prior to confirmation of a bankruptcy plan. The Florida Department of Revenue argues that the Eleventh Circuit's interpretation of the statute is not justified by the rules of statutory interpretation and claims that the lower court's decision will create much unnecessary litigation and ambiguity in the law. Piccadilly Cafeterias argues, however, that the text is ambiguous and therefore can be read to support both points of view. For this reason, Piccadilly suggests looking beyond the text to congressional intent and policy concerns. Whichever way the Court interprets this statute, this case will have a profound impact on state and local revenue collection.

Questions as Framed for the Court by the Parties

Whether section 1146(a) of the Bankruptcy Code, which exempts from stamp or similar taxes any asset transfer "under a plan confirmed under section 1129 of the Code," applies to transfers of assets occurring prior to the actual confirmation of such a plan?

Prior to its bankruptcy, Piccadilly Cafeterias, Inc. ("Piccadilly") operated 145 cafeterias in the southeastern United States and was one of the largest cafeteria chains in the nation. See In Re Piccadilly Cafeterias, Inc., 379 B.R. 215, 217 (S.D. Fla.

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Franchise Tax Board of the State of California v. Hyatt

Issues

May a private citizen sue a state agency in a foreign state’s court? If so, must that state’s court treat the foreign state agency at least as favorably as it would a similar agency from its own state?

Court below

 

The Supreme Court must determine the boundaries of Eleventh Amendment sovereign immunity and comity as applied to a state that has been unwillingly brought into another state’s courts. See Brief for Petitioner, Franchise Tax Board of the State of California at 1. The Franchise Tax Board of the State of California (“FTB”) looks to reverse Nevada v. Hall by expanding sovereign immunity to suits brought by private citizens in other states or, alternatively, to find that Nevada violated principles of full faith and credit, comity, and equality, by treating the FTB differently than it would a similar Nevada agency. See id. at 25. Conversely, Hyatt argues that Nevada v. Hall must be upheld as a matter of stare decisis and that the privilege of comity does not require the forum state, in all circumstances, to treat another state’s agency the same as the forum state’s equivalent agency. See Brief for Respondent, Gilbert P. Hyatt at 17. The Supreme Court’s decision will determine where states may be haled into court by a private citizen and to what degree states can be civilly liable for violating the law. See Brief of Amicus Curiae Multistate Tax Commission in Support of Petitioner at 4, 6.

Questions as Framed for the Court by the Parties

  1. May Nevada refuse to extend to sister States haled into Nevada courts the same immunities Nevada enjoys in those courts?
  2. Should Nevada v. Hall, 440 U.S. 410 (1979), which permits a sovereign State to be haled into the courts of another State without its consent, be overruled?

In 1991, Gilbert P. Hyatt (“Hyatt”) began to receive large amounts of income from licensing fees for a computer chip patent. See Franchise Tax Board v. Hyatt, 335 P.3d 125, 131 (Nev.

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Knight v. Commissioner of Internal Revenue

Issues

Does the Internal Revenue Code allow trusts and estates to make full deductions on Federal Income tax returns for investment management advisory service fees?

 

Michael Knight, trustee of the Rudkin Testamentary Trust, petitioned the United States Tax Court to dispute the Internal Revenue Service ("IRS") assessment that the Trust owed taxes for investment-advisory expenses Knight had deducted in full. The Internal Revenue Code contains a 2% floor on all itemized deductions. The IRS assessed that Knight failed to recognize this floor, significantly lowering the deduction amount. Knight argued these expenses should be exempt because they were necessary for Knight to fulfill his fiduciary duties as a trustee. The Tax Court stated that, to be exempt, Knight needed to show these expenses would not have been incurred if the assets were not held in trust. The Tax Court found Knight failed to satisfy his burden of showing that the expenses were unique to trusts and decided in favor of the IRS. The United States Court of Appeals for the Second Circuit affirmed the Tax Court's holding. The Supreme Court of the United States granted certiorari to resolve a conflict between a holding by the Sixth Circuit and those of the Second, Fourth, and Federal Circuits. As trustees spend billions of dollars yearly on management advice, this case will have wide-reaching consequences. A decision for the IRS will result in the same level of taxation on investment-management expenses for individuals and trusts and more taxes to the IRS tempered by decreased use of management services by trustees. A decision for Knight would lower the taxes of trustees and encourage trustees to use investment-management services.

Questions as Framed for the Court by the Parties

Whether 26 U.S.C. § 67(e) permits a full deduction for costs and fees for investment management and advisory services provided to trusts and estates.

In the late 1930s, entrepreneur Margaret Rudkin founded a small business that ultimately developed into 

Acknowledgments

The authors would like to thank Professors Robert Green and Emily Sherwin and for their insights on trusts in the United States.

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