Opposition Brief — Stevens v. Tax Assessor of Maine

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Supreme Court, U.S.

FILED

5 ew 13: J

No. 89-1936

— — LS | YOSEPH F_ A f ‘OL, JR,

1 CLERK

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Suprente 0G ourt of the Llnited States

October Term, 1989

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KARL AND LUCILLE STEVENS,

Petitioners,

STATE TAX ASSESSOR,

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Respondent.

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Petition for Writ of Certiorari

To the Supreme Judicial Court of Maine

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BRIEF IN OPPOSITION

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TAMES E. TIERNEY

Attorney Ceneral

Crmrorp B. OLson

Assistant Attorney General

Counsel of Record

State House Station #6

Augusta, ME 04333

(207) 289-3661

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A 44 4 I» 747

iLforneys for Respondent

BEST AVAILABLE COPY

QUESTION PRESENTED

Is Maine’s consideration of non-Maine income in

computing the income tax rate to be applied to the Maine

income of a nonresident taxpayer consistent with the Due

Process Clause, the Privileges and Immunities Clause and

the Equal Protection Clause of the Constitution of the

United States?

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TABLE OF CONTENTS

Page

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Reasons for Denying the Writ ..................... 3

The decision below is consistent with precedents

of this Court and does not give rise to a substan-

tial Cetleuns queeties. ......5icccascsdesseanen 3

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TABLE OF AUTHORITIES

Page(s)

CASES

American Trucking Associations, Inc. v. Scheiner, 483

SE 5

Austin v. New Hampshire, 420 U.S. 656 (1975)......... 7

Barney v. State Tax Assessor, 490 A.2d 223 (Me.),

ee ee , GE CAGED)... 2... cece ccc ccees 2

Commonwealth Edison Co. v. Montana, 453 U.S. 609

ESR A 5

Complete Auto Transit v. Brady, 430 U.S. 274 (1977) ..... 5

Davis v. Franchise Tax Board, App., 139 Cal. Rptr.

797 (1977), appeal dismissed, 434 U.S. 1055 (1978)..... 4

Frick v. Pennsylvania, 268 U.S. 473 (1925)............. 4

Great Atlantic & Pacific Tea Co. v. Grosjean, 301 US.

CRG S SUK bes co 6060 bec e ences ssesess passim

Japan Line, Ltd. v. County of Los Angeles, 441 U.S.

Den we eeeneveces 5

Lincoln Nat'l Life Ins. Co. v. Read, 325 U.S. 673

aCe EG EG hs Gases eke keeeccen vi esedecnces 5

Low v. Austin, 80 U.S. (13 Wall.) 29 (1871)............ 5

Maxwell v. Bugbee, 250 U.S. 525 (1919)........... passim

Michelin Tire Co. v. Wages, 423 U.S. 276 (1976)........ 5

pees @ Career, coe US. 37 (1920)................0.. 4

Western & Southern Life Ins. Co. v. State Bd. of

Equatization, 451 U.S. 648 (1981).................0.: 5

Wheeler v. State, 249 A.2d 887 (Vt.), decision adhered

to, 253 A.2d 136, appeals dismissed, 396 U.S. 4

ene passim

iv

TABLE OF AUTHORITIES - Continued

Page(s)

CONSTITUTIONAL PROVISIONS

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US. Constitution, Amend. RIV, & 2 «2... ccs sesescsens 2

STATUTES

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De ni Ss kacca eas en aeNa Raa e Re eR ete 2

Pe ee OR oh ods hae eace kek emiee sae eae 8

OTHER

Hellerstein, W., Some Reflections on the State Taxa-

tion of a Nonresident’s Personal Income, 72 Mich.

— 6 fe. ees ere Terre rr Tre 7

No. 89-1936

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In the

Supreme Court of the Hnited States

October Term, 1989

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KARL AND LUCILLE STEVENS,

Petitioners,

STATE TAX ASSESSOR,

Respondent.

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Petition for Writ of Certiorari

To the Supreme Judicial Court of Maine

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BRIEF IN OPPOSITION

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STATEMENT OF THE CASE

Petitioners Karl and Lucille Stevens (“the Stevenses”)

at all relevant times were married and were domiciliaries

of New Hampshire. For the entire year 1986, Karl Stevens

was employed at the Portsmouth Naval Shipyard, a fed-

eral enclave located within the boundaries of the State of

Maine, and Lucille Stevens was employed in the State of

New Hampshire. The Stevenses also had interest, divi-

dend and capital gain income from non-Maine sources.

Because they elected to file a joint Maine individual

income tax return for 1986,1 the Stevenses computed their

Maine income tax liability as if they were Maine residents

and were allowed, against that liability, a credit which

reflected the ratio of their non-Maine adjusted gross

income to their total adjusted gross income. 36 M.R.S.A.

§ 5111(4) (repealed and replaced by P.L. 1987, ch. 819, § 2).

In 1988, the Stevenses, represented by the New

Hampshire attorney general’s office, filed a claim for

refund of a portion of their 1986 Maine income tax. The

claim was based primarily upon the proposition that

Maine’s consideration of the Stevenses’ non-Maine

income in determining the tax rate to be applied to their

Maine income constituted, in effect, a tax upon that non-

Maine income in violation of the Due Process Clause

(Amend. XIV, § 1) of the Constitution of the United

States.2 The Stevenses also asserted that the Maine com-

putation method violated the Privileges and Immunities

Clause (Art. IV, § 2, cl. 1) and the Equal Protection Clause

(Amend. XIV, § 1) of the Constitution of the United

1 Mrs. Stevens’ income was reported on this return only

because the Stevenses elected to file jointly. 36 M.R.S.A.

§ 5221(2) (Supp. 1989). If he had chosen to do so, Karl Stevens

could have filed a separate return under the rates applicable to

single persons and married persons filing separately. See 36

M.R.S.A. § 5111(1) (Supp. 1989). He presumably chose not to do

so because it was financially advantageous to file a joint return.

2 $232 of the Stevenses’ claimed overpayment of $681 was

attributable to their unwarranted presumption that the Maine

Income Tax Law would allow nonresidents full, rather than

prorated, personal exemptions and deductions if their position

in this litigation were sustained. See Barney v. State Tax Assessor,

490 A.2d 223 (Me.), cert. denied, 474 U.S. 828 (1985).

States. The State Tax Assessor denied the refund claim.

On de novo appeal, the Kennebec County Superior Court

held that Maine’s computation method was constitu-

tional. Petition for Writ of Certiorari (“Pet.”) 6a-13a.

On appeal, the Supreme Judicial Court of Maine held

that the Assessor’s reference to the Stevenses’ total income to

determine the rate of tax to be applied to their Maine income

did not violate the Due Process Clause. In addition, the court

held that neither the Privileges and Immunities Clause nor

the Equal Protection Clause had been violated because the

Stevenses were taxed on their Maine income at the same rate

at which similarly-situated Maine residents would have been

taxed on their total income. Stevens v. State Tax Assessor, 571

A.2d 1195 (Me. 1990), Pet. la-5a.

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REASONS FOR DENYING THE WRIT

The decision below is consistent with precedents of this

Court and does not give rise to a substantial federal

question.

The decision of the Supreme Judicial Court of Maine

is consistent with long-established precedent of this

Court and therefore does not merit review. In Maxwell v.

Bugbee, 250 U.S. 525 (1919), this Court held that New

Jersey had constitutionally determined inheritance tax

liability with respect to a nonresident decedent by apply-

ing its graduated rates to the total property of the dece-

dent and prorating the result by the ratio of the

decedent’s New Jersey property to his total property. In

Great Atlantic & Pacific Tea Co. v. Grosjean, 301 U.S. 412

(1937), this Court, relying in part upon Maxwell, upheld a

Louisiana license tax statute under which the tax imposed

upon each Louisiana chain store was dependent upon the

total number of stores, both in-state and out-of-state, in the

chain.

More recently, in 1969, this Court dismissed, for want of

a substantial federal question, an appeal challenging an

income tax statute almost identical to Maine’s. Wheeler v.

State, 249 A.2d 887 (Vt.), decision adhered to, 253 A.2d 136,

appeals dismissed, 396 U.S. 4. Cf. Davis v. Franchise Tax Board,

App., 139 Cal. Rptr. 797, 799 (1977), appeal dismissed for want

of a substantial federal question, 434 U.S. 1055 (1978) (constitu-

tionality of California’s denial of income averaging to non-

residents was supported in part by California’s having

foregone its constitutional option of using their total income

in its computation of tax on their California income).

The Stevenses now argue that Maxwell, Grosjean and

Wheeler should be reexamined in light of what they describe

as this Court’s “recent” emphasis upon “economic realities”

and the “practical effect” of taxes. Pet. 5-8. In fact, however,

this Court’s focus upon the practical effect of taxes is nothing

new. Within months of its decision in Maxwell, for example,

the Court stated the need to give less regard to “theoretical

distinctions” and more to the “practical effect and operation”

of an income tax statute as applied to nonresidents. Shaffer v.

Carter, 252 U.S. 37, 56 (1920). Furthermore, this Court had no

difficulty in overturning an inheritance tax when it actually

taxed extraterritorial value. Frick v. Pennsylvania, 268 U.S. 473

(1925).

In support of their argument that Maxwell, Grosjean

and Wheeler should be reexamined, the Stevenses primar-

ily rely upon decisions under the Commerce Clause. The

analysis in those cases, however, is not relevant to the

Stevenses’ challenge here, which is primarily based upon

the Due Process Clause. Moreover, the cases relied upon

by the Stevenses all involve instances in which this Court

has abandoned formalistic wooden doctrines which did

not accurately reflect economic realities.

Thus, four of the six cases upon which the Stevenses

rely relate to this Court’s 1977 rejection of the long-

standing commerce clause standard that a tax could not

be directly imposed upon interstate commerce. See Com-

plete Auto Transit v. Brady, 430 U.S. 274 (1977) (replacing

old standard with new 4-prong test); Japan Line, Ltd. v.

County of Los Angeles, 441 U.S. 434, 441-444 (1979) (con-

tinuing vitality of “home port doctrine” not determined

because case could be decided under two additional for-

eign commerce prongs of new commerce clause test);

Commonwealth Edison Co. v. Montana, 453 U.S. 609, 614-617

(1981) (immunization of tax on local event from com-

merce clause scrutiny is no longer necessary to protect

state’s taxing authority); American Trucking Associations,

Inc. v. Scheiner, 483 U.S. 266, 292-296 (1987) (prior deci-

sions upholding flat taxes for privilege of using a state’s

highways are no longer appropriate now that interstate

commerce may be required to pay its way).

The other two authorities cited by the Stevenses sim-

ilarly involved the overruling of anachronistic decisions

and doctrines. See Western & Southern Life Ins. Co. v. State

Bd. of Equalization, 451 U.S. 648, 662-668 (1981) (overrul-

ing Lincoln Nat'l Life Ins. Co. v. Read, 325 U.S. 673 (1945),

which had been rendered an anachronism by equal pro-

tection decisions dating from 1910 through 1968); Mich-

elin Tire Co. v. Wages, 423 U.S. 276 (1976) (overruling Low

v. Austin, 80 U.S. (13 Wall.) 29 (1871), which had wrongly

decided that imports could not be taxed by states at all

until they lost their character as imports). These cases

offer no support for the Stevenses’ argument that this

Court should now review Maxwell, Grosjean and Wheeler.

In contrast to the cases overruled in the decisions

cited by the Stevenses, the principle of Maxwell is not a

“formalistic doctrine” (Pet. 6) but, rather, a mathematical

reality. As the Supreme Court of Vermont recognized in

Wheeler, even if the contested Vermont statute had

imposed a confiscatory 100% tax rate, the total amount of

Wheeler’s Vermont tax liability would not have exceeded

his Vermont income, and therefore the Vermont tax did

not reach Wheeler’s New Hampshire income. 249 A.2d at

890.

Furthermore, it is the Stevenses who ignore economic

realities in asserting that Maine, which bases its tax rates

for both residents and nonresidents on ability to pay,

must ignore the Stevenses’ actual ability to pay in this

case:

If a state resolves that it is appropriate for an

individual who earns $100,000 to pay at the rate

of $.25 on the dollar, it would appear to make no

difference in terms of that determination

whether the individual accumulated the sum by

earning $100,000 in one state or $2,000 in fifty

states. The argument for permitting a state to

look to a taxpayer’s total income from all

sources for purposes of its progressive rate

structure would therefore seem to be a logical

corollary of the rationale for such a rate struc-

ture, a rationale that has essentially nothing to

do with the territorial limits of the taxing state.

W. Hellerstein, Some Reflections on the State Taxation of a

Nonresident’s Personal Income, 72 Mich. L. Rev. 1309, 1323

(1974).

The Stevenses address equal protection and privi-

leges and immunities only in a footnote, in which they

assert that the requisite discrimination between similarly

situated residents and nonresidents can be demonstrated

if the term “similarly situated” is construed to require a

comparison of the Stevenses with a Maine resident who

has the same Maine income as the Stevenses but no non-

Maine income. Pet. 6n.1. This position is supported only

by the contention that inclusion of the Stevenses’ non-

Maine income in the comparison would be “unreason-

able” because that income cannot be taxed by Maine. Id.

However, logic dictates, and the Supreme Judicial Court

of Maine held, that residents and nonresidents are sim-

ilarly situated when they have the same total income. 571

A.2d at 1197 (Pet. 4a-5a); see Wheeler v. State, 249 A.2d 887,

889, 890-891 (Vt.), appeal dismissed for want of a substantial

federal question, 396 U.S. 4 (1969).

The Stevenses, attempting to fit this case into the

mold of Austin v. New Hampshire, 420 U.S. 656 (1975), now

assert that retaliation by New Hampshire is likely if

Maine’s nonresident provisions are not declared uncon-

stitutional. Pet. 8. However, the New Hampshire statute

at issue in Austin was not found unconstitutional merely

because it might have led to retaliation but because it

discriminated between similarly situated residents and

nonresidents. The Maine statute at issue here does not

discriminate in this fashion. To suggest that Maine’s

statute should be invalidated merely because it is

politically unpopular in New Hampshire? and therefore

might lead to retaliatory action by the New Hampshire

legislature would make constitutional doctrine depen-

dent upon the political attitudes of the New Hampshire

electorate. The Constitution does not mandate the over-

turning of a nondiscriminatory tax law simply because

the nonresident taxpayers prefer not to pay the full

amount of the tax.

Finally, the Stevenses argue that Maine, by including

a Maine nonresident taxpayer’s New Hampshire income

in the computation of his Maine income tax liability,

somehow is exploiting New Hampshire’s policy decision

not to have a general personal income tax. Pet. 8-9. New

Hampshire’s tax policy, however, is, irrelevant to this

appeal; Maine’s measurement of a fair tax, reflecting abil-

ity to pay, on Maine income would be no different if New

Hampshire had a broad-based personal income tax. New

Hampshire’s current tax policy serves only to provide

New Hampshire residents, who otherwise might be indif-

ferent as to which of the two states taxes their income,

with a personal financial stake in minimizing the tax that

Maine imposes on their Maine income.

La.

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3 This political unpopularity is demonstrated by the legis-

lation authorizing the New Hampshire attorney general to rep-

resent petitioners in this action. See N.H. Laws 1987, ch. 157.

* There is no valid reason why a New Hampshire resident's

Maine income should be treated as the “low-bracket” income of

that resident, thereby leaving his “upper-bracket” income for

taxation by New Hampshire or his personal benefit, depending

upon New Hampshire tax policy.

CONCLUSION

For the reasons stated above, the Court should deny

the petition for writ of certiorari.

Respectfully submitted,

James E. TIERNEY

Attorney General

CLIFFORD B. OLSON

Assistant Attorney General

Counsel of Record

State House Station #6

Augusta, ME 04333

(207) 289-3661

Attorneys for Respondent

July 20, 1990

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APPENDIX

U.S. Const., Art. IV, § 2, cl. 1

The Citizens of each State shall be entitled to all

Privileges and Immunities of Citizens in the several

States.

U.S. Const., Amend XIV, § 1

All persons born or naturalized in the United States,

and subject to the jurisdiction thereof, are citizens of the

United States and of the State wherein they reside. No

State shall make or enforce any law which shall abridge

the privileges or immunities of citizens of the United

States; nor shall any State deprive any person of life,

liberty, or property, without due process of law; nor deny

to any person within its jurisdiction the equal protection

of the laws.

36 M.R.S.A. § 5111(4) (repealed and replaced by

P.L. 1987, ch. 819, § 2)

A tax is imposed upon the Maine income of every

nonresident individual. The amount of the tax shall be

equal to the tax computed under this section and chapter

805 as if the nonresident were a resident, less applicable

tax credits other than [the credit for income tax paid to

another jurisdiction], and multiplied by the ratio of his

Maine adjusted gross income, as defined in section 5102,

subsection 1-C, paragraph B, to his entire federal adjusted

gross income, as modified by section 5122.

2a

36 M.R.S.A. § 5221(2) (Supp. 1989).

If both husband and wife are nonresidents and one

has no Maine-source income, the spouse having Maine

source income shall file a separate Maine nonresident

income tax return, as a single individual, in which event

his tax liability shall be separate; but they may elect to

determine their joint taxable income as nonresidents, in

which case their liabilities shall be joint and several.

If either husband or wife is a resident and the other is a

nonresident, they shall file separate Maine income tax

returns as single individuals, in which event their tax

liabilities shall be separate; but they may elect to deter-

mine their joint taxable income as if both were residents

and, in that case, their liabilities shall be joint and several.

have 4