Supreme Court to Consider Hearing Case Challenging NYS over Interstate Double Taxation

By:
Ruth Singleton
Published Date:
Sep 18, 2019

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At a conference scheduled for Oct. 1, the U.S. Supreme Court will decide whether to hear a case involving taxpayers who meet the definition of  “statutory resident” in both New York and Connecticut and thus are subject to income taxation in both states, according to Accounting Today.

The case, Edelman v. New York State Department of Taxation and Finance, concerns taxpayers Samuel and Louise Edelman, who lived in Connecticut but worked in New York, where they owned an apartment. Even though their primary residence was in Connecticut, they met New York’s definition of a “statutory resident” and were thus subject to taxation by both states. New York law defines “statutory resident’ as someone who spends any portion of 183 days or more in New York and maintains a “permanent place of abode” in the state. When the Edelmans sold their interest in a business, both Connecticut and New York taxed them on their intangible income from the sale, and New York did not allow any credit for the tax paid to Connecticut.

At issue is whether New York’s taxation scheme violates the commerce clause under the Supreme Court’s ruling in Comptroller of Treasury of Maryland v. Wynne (2015). In that case, the high court held that Maryland’s tax scheme violated the "dormant commerce clause"—a prohibition against states “discriminating against or imposing excessive burdens on interstate commerce without con¬≠gressional approval.” The court applied its “internal consistency test, which “looks to the structure of the tax at issue to see whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.” It found that the Maryland tax scheme operated as a tariff and was thus inherently discriminatory.

In the Edelmans’ petition for a writ of certiorari, they argue that the New York state tax scheme violates the dormant commerce clause under the Wynne case. They also argue that the burden on interstate commerce “is especially intolerable because the State at issue is New York, which is both ‘the world’s preeminent financial center,”’ … and a State that employs an especially high proportion of out-of-state residents.”

In its brief in opposition, New York states that it does provide its residents "with a tax credit for personal income taxes paid to another State on income earned in that State, but not for taxes paid to another State on intangible income not derived from economic activities in the other taxing State." It argues that the statutory provisions at issue "affect only persons with residence in two states and income from intangible property that does not represent activity in either of the two states. Because of the high bar to qualify as a statutory resident, the number of people affected will be quite limited." The state further argues that its tax scheme does not conflict with Wynne, "passes the internal consistency test" and does not discriminate against interstate commerce, so that there is no need for the Supreme Court to hear the case.

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