Hughes v. Oklahoma

1 Analyses of this case by attorneys

  1. National Attention Falls on Philadelphia Wage Tax Dispute; Federal Constitutional Restraints Implicated

    Troutman PepperDecember 21, 2022

    s, and among the several States . . . ." U.S. Const. art. I, §8, cl. 3.The Supreme Court has long held that under the Commerce Clause "interstate business…shall not be burdened with cumulative exactions which are not similarly laid on local business." Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 258 (1938). The Supreme Court consistently has recognized the harm that multiple state taxes could inflict on interstate commerce, plainly holding that a state "may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State." Armco Inc. v. Hardesty, 467 U.S. 638, 642 (1984). The restrictions on taxation of interstate commerce imposed by the Commerce Clause follow from the framers' "conviction that in order to succeed the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation." Hughes v. Oklahoma, 441 U.S. 322, 325-26 (1979).By denying the taxpayer the full credit for Delaware state tax paid, she is subject to a higher tax burden than she would have been if she were a Philadelphia resident working wholly in Pennsylvania. This is an impermissible burden on her participation in interstate commerce.WynneThe Wynne opinion provides the roadmap for the proper analysis. In Wynne, the Supreme Court held that the Commerce Clause requires that credits for taxes paid to other states must be permitted to offset a local tax paid in a taxpayer's state of residence on the same income. Wynne, 575 U.S. at 564.Wynne involved the Maryland state personal income tax and a county-level tax upon income. A married couple residing in Maryland received pass-through income from an "S" Corporation, which filed income tax returns and paid income taxes in 39 states. Maryland law allowed the couple a credit against their state income tax for those taxes paid to the other states but did not permit an unused state income tax credit again