Amicus Curiae Brief — VFJ Ventures, Inc. v. Surtees (No. 08-916)

\

FILED

No. 08-916

Supreme Court, U.S.

FEB 2 0 2009

ERK

IN THE

Supreme Court of the United States

VFJ VENTURES, INC., F/K/A VF JEANSWEAR, INC.,

Petitioner,

¥.

G. THOMAS SURTEES, IN HIS OFFICIAL CAPACITY AS

COMMISSIONER OF THE DEPARTMENT OF REVENUE

FOR THE STATE OF ALABAMA,

AND THE ALABAMA DEPARTMENT OF REVENUE,

Respondenis.

On Petition for Writ of Certiorari to the

Supreme Court of Alabama

BRIEF OF

INSTITUTE FOR PROFESSIONALS

IN TAXATION

AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

Cass D. VICKERS DONALD M. GRISWOLD

(Counsel of Record) Reed Smith LLP

Institute for 1301 K Street N.W.

Professionals Washington DC 20005

in Taxation (202) 414-9200

1200 Abernathy Road NE gapa a La

Atlanta, GA 30328 Reed Smith LLP

(850) 907-0692 1650 Market Street

Philadelphia, PA 19193

(215) 851-8100

WILSON-EPES PRINTING CO., INC. - (202) 76-0008 - WASHINGTON, D.C. 20002

TABLE OF CONTENTS

Page

RPRRreaee COE FATE PIIIRE LENG occcsecciesenssccsscosscossvosseceees ill

INTEREST OF THE AMICUS CURIAE. ................... 1

SUMMARY OF ARGUMENT. ........ccccsccccsrcscesosssssessees 2

REASONS WHY THE WRIT SHOULD BE

ROR aR USERS Ree) AIREY Ree a 3

I. IMPORTANT CONSTITUTIONAL QUESTIONS

WILL GO UNRESOLVED UNLESS

"ERRRS WERE E BaP MAMIRIN BB occ cncsenceresnsssorscecenssenexesers 3

A. Alabama Has Undermined the Integrity of

Our System of Interstate Commerce by

Unfairly Apportioning Income....................2.... 4

1. The Commerce Clause Protects Our

National Free-Trade Zone from

Extraterritorial Taxation by States...........5

2. The Statute Is Per Se Invalid Because,

on Its Face, Its Operation is Triggered by

OEE StRtl EVORUG 0.0 .ccscccccccccccesscsccccesceses 7

3. The Statute Invalidly Aims to Tax Income

Attributable to Other States...........00000.0.... 9

il

TABLE OF CONTENTS

(continued)

Page

B. Alabama Has Denied Due Process of Law to

VFJ and Other Corporations...................:0006 13

1. Due Process Protects Corporate Persons

from State Taxation of Values Not

Rationally Related to that State .............. 13

2. The Statute Constitutes a Facial Denial of

Due Process Because It Is Qualitatively

Irrational to Determine Any Corporation’s

In-State Values Based on Another State’s

FR Fas iiiicktvncscssecesseses 15

If. THE NEED FOR REVIEW IS URGENT........... 18

A. The Proliferation of Similar Statutes Around

the Country, and Continuing Uncertainty

Regarding Their Validity, Impose Onerous

Compliance Costs on America’s Businesscs.. 18

B. America’s Businesses Will Never Be Made

Whole, But Prompt Resolution Will Mitigate

Cie Era sisvcnsstnesescccccee 22

CON CLUB cera eae issercciscsssecesseess 24

iii

TABLE OF AUTHORITIES

CASES

Page(s)

American Tel. & Tel. Co. v. Wisc. Dep’t. of Rev.,

422 N.W.2d 629 (Wisc. Ct. App. 1987).............. 10

Boston Stock Exch. v. State Tax Comm'n,

FS RS) Ls a 4 Rea ne een eR 6

Caterpillar Tractor Co. v. Dep’t. of Rev.,

S Oe. FO Bae CIE. FG... FT ie vecscsnnessessssccsscesssne 10

Complete Auto Transit, Inc. v. Brady,

Oe Siete Be CET EP trots neice 5

Container Corp. of Am. v. Franchise Tax Bd.,

OG eB COD Sasa ndnsinstacssescrectvsabiectnnee 7, 8,9

Covington & Lexington Tpk. Rd. Co. v. Sandford,

164 U.S. 578 (18OG) ........cccccccscessscsessescncecescsssvees 14

Ex parte Surtees (Vulcan Lands, Inc. v. Surtees),

Nos. 1070386, 1070399, 2008 WL 4369259 (Ala.

OE, Tis, SEE Nwickausssastnccavsoeensivarnetemcaceaees anes 23

Exxon Corp. v. Wis. Dep’t. of Revenue,

BE Wie Ee Pe toad daticisieitn sisi csaeninss 14, 18

First Nat'l Bank v. Bellotti,

ee Gat Fe I aaa cciscnnid ne vac caccdes con sactesatens 14

Geoffrey Inc. v. S.C. Tax Comm 'n.,

MOT BBe Se BS EA... CDG cscccscerccvcsviccossscecssenavecs 10

iv

TABLE OF AUTHORITIES

(continued)

Page(s)

Hans Rees' Sons, Inc. v. North Carolina,

, - 228 We ~ FE). nee nn anne ee 17

Hunt-Wesson, Inc. v. Franchise Tax Bd.,

I ee ie I I cio ca hits dlcndcemassiotcaieevenins 8,9

Lanco, Inc. v. Director, Div. of Taxation,

21 N.J. Tax 200 (N.J. Tax Ct. 2003) ............0.... 10

Luckenbach S.S. Co. v. Franchise Tax Bd.,

33 Cal. Rptr. 544 (Cal . Ct. App. 19698)............. 12

McKesson Corp. v. Division of Alcoholic Beverages

& Tobacco,

ns UY ocsahccacdseredaness veceieeotarekaniasanieens 23

MeadWestvaco Corp. v. Ill. Dep't of Revenue,

Be te Se I CID oink cia tia dicta carreinineccererinnss 9

Mobil Oil Corp. v. Comm 'r of Taxes of Vt.,

GT EF re COD vinkcs since dnvsevncvesteccacceens 14, 18

Mocrman Mfg. Co. v. Bair,

OF Ti FT 0 sss rtiecerrctmccerescctiaces 14, 18

New Energy Co. of Ind. v. Lumbach,

I Be ee ED seen hinsidicnnsssdacondesavecsaveensartinnsvans 6

Norfolk & W. Ry. Co. v Mo. State Tax Comm'n,

Pe Br eT CD xctvcasacsevhevearesiseseciines 8, 14, 18

Vv

TABLE OF AUTHORITIES

(continued)

Page(s)

Northwestern States Portland Cement Co. v.

Minnesota,

De A. WE I ovis cccassndsn a kiode cvenensacsanmecceucs 5

Oklahoma Tax Comm'n v. Jefferson Linea, Inc.,

RR, gr SURNAM ise rat mec GON Wn ee 10

Quill Corp. v. North Dakota,

BG 0) i, BO CED cicetencnsssnssccctsnessesesvescnsensss 5, 14

Santa Clara County v. Southern Pacific R.R. Co.,

Be rs Me CE in oivvcscneicnvasccsvceccsacisncensievesene 14

South Cent. Bell Tel. Co. v. Alabama,

Rt Eo ED vsecneiivnsscivsccoretscdakescaneneseneconad 24

Surtees v. VFJ: Ventures, Inc.,

No. 2060478, 2008 WL. 344118 (Ala. Civ. App.

Rae tan ve ern cea eee 31, 17,22

Trinova Corp. v. Mich. Dep't of Treasury,

SE ais Be FED icinedvaeynccecenscaocanseainunorenscns 8, 14

Tyler Pipe Indus., Inc. v. Wash. State Dep't of

Revenue,

ame WE IY si ds ox ca uacsncdance<capesduxcespsavennceni 3D

VFJ Ventures, Inc. v. Surtees,

No. CV-03-3172 (Cir. Ct. Montgomery County,

Me RR EE oe sista ctinnesedecncadatiucetaoreeeiil 11

v1

TABLE OF AUTHORITIES

(continued)

Page(s)

Vulcan Lands, Inc. v. Surtees,

No. 2060607, 2007 WL 4215046 (Ala. Civ. App.,

Re EAT OED Ee ae OIE ear 23

CONSTITUTIONAL PROVISIONS

yO Bt i icccccs snnscnkninddenacevsaiicunoavacnssoa 3

ea SR: SIN FI os sacncsvdcccccbesusyviversavcemeces 3, 13

STATUTES AND ADMINISTRATIVE

MATERIAL

Se IE ys kccvanteniccccocwarcasensesenvesesssanawieest 15

Bilt, CIRO BBG 1B BOD) cen cccsccovinccvsscnsccacecesscced 4,13, 16

Ala. Code §40-27+1 .....ccccccesscesesecssesesessescsesessseacsceesees 11

Ark. Code Ann. § 26-51-423(g) .............ccecseeseeeees 13, 18

ORR SOs HERE: B BETA GG) vc esssnictessiviacsseseccosesnss 13, 18

D.C. Code Ann. § 47-1803.03(a)(19) ............. eee ee 13, 18

Ga. Code Ann. § 48-7-28.3(b)(1)(K) ...............2000 13, 18

$5 I. Comp. Stat. 5/203(b)(E-12) ............cccseecee. 13, 18

35 Ili. Comp. Stat. 5/203(b)(B-13) ................c0ece 13, 18

Ind. Code Ann. § 6-3-1-3.5(b)(Q) .......... eee eee 13, 18

vil

TABLE OF AUTHORITIES

(continued)

Page(s)

Ind. Code Amn. § 6+3-2-20) ..........ccsccccscccscscccscesesss 13, 18

Ba. OY. TRE. PRM. FS DAT B Gc ocscscvsscccvssssersrsessess 13, 18

Md. Code Ann., Tax-Gen. § 10-306.1 ................. 13, 18

Mass. Gen. Laws Ann. ch. 63, § 31I................... 13, 18

Mass. Gen. Laws Ann. ch. 63, § 3]d................... 13, 18

Mich. Comp. Laws § 208.1201(2)cf)..................+ 13. 18

H.B. 660, S.B. 753, 2005 Leg., 84th Sess. (Minn.

I ialeveosntguekonaiesinidtonninssedindboimenssnareobemeiameueedinys 19

Miss. Cade Ann. § 27-7-17(2)............ccccecesescceseess 13, 18

PEs SHOE, FARIA. BG TE vies cncccicessttisnscceesososenses 13, 18

Peal. SOOM. PAM. BOG: TOA -E.G....n cccccsrccteseseressessecnses 13, 18

ee et te IO ani cvceeccccncxcessavvnerestecccxepns 13, 18

NAC. Coen. BER; SIOG- TOD. TA. ccsccsaveonsscsscessscesecesss 13, 18

Ohio Rev. Code Ann. § 5733.042); ........... ee eeeee eee 13, 18

Or. Admin. M. 150-S14.206.........ccresosrccsccrsescsessees 13, 18

H.B. 518, 2005 Gen. Assem., Reg. Sess. (Pa. 2005) 19

R.1. Gen. Laws § 44-11-11(f) ......... eee eee eee 13, 18

Vili

TABLE OF AUTHORITIES

(continued)

Page(s)

S.C. Code Amm. § 13-6- 1180 ......ccccscccccccscenseccccsees 13, 18

Tenn. Code Ann. § 67-4-2006(b) ...............ceeeeeeee 13, 18

Tenn. Code Ann. § 67-4-2006(d) ..............ccceeeceees 13, 18

Va. Code Ann. § 58.1-402(B)................ccccecsseeeeees 13, 18

eh Se Se FE conc cerecerenteceiacinimneaneee 13, 18

We SRE, ST Ee svieinainicssiniccncaseesmeaan 13, 18

RULE

mm. TA. TH SAD cnticeicttsmansiaeaananes 1

OTHER AUTHORITIES

Brannon P. Denning, Confederation-Era

Discrimination Against Interstate Commerce and

the Legitimacy of the Dormant Commerce Clause

Doctrine, 94 Ky. L.J. 37, 53 (2005/2006)............ 19

The Federalist (Clinton Rossiter ed., 1961).............. 6

Joe Garrett and Kelly W. Smith, Add-Back Statutes:

Where Do We Go From Here?, Presentation at

2005 SEATA Conference (July 12, 20085)........... 19

ix

TABLE OF AUTHORITIES

(continued)

Page(s)

Sanjay Gupta and Lillian Mills, Does Disconformity

in State Corporate Income Tax Systems Affect

Compliance Cost Burdens? NATIONAL TAX

JOURNAL 56:2 (Jume 20038)..............ccccsesssereeceeeees 21

1 Jerome R. Hellerstein & Walter Hellerstein, STATE

BARATION (SG. OG. ZOOG)....ccscccccoccsescocccvccosecccseees 12

J. Scott Moody, Wendy Warcholik, & Scott A. Hodge,

The Rising Cost of Complying with the Federal

Income Tax, TAX FOUNDATION SPECIAL REPORT

Ne icc. ssccovarepnccevsenoonsdseoososeses 20

Multistate Tax Compact, http://www.mtc.gov........ 11

Press Release from California Controller John

Chiang, Chiang Announces Payment Delays to

Manage Cash Crisis (January 16, 2009) ........... 23

Michael S. Schadewald, Deducting Related-Party

Interest and Intangible Expenses (2005)............ 19

Daniel Shaviro, An Economic and Political Look at

Federalism in Taxation, 90 MICH. L. REV. 895

ses cecscheseneseeneersocesonescacccsceccens 20

E. Kendrick Smith and Matt Cristy, Georgia Gets A

Grasp On Passive Investment Companies: New

Addback Statute Reaches Intangible and Interest

Income Flowing From The State (2005)............. 19

x

TABLE OF AUTHORITIES

(continued)

Page(s)

Laurence H. Tribe, AMERICAN CONSTITUTIONAL LAW

EEE, GE.) IIE coidcutnsadiecctntesoreoninenicsmneiiinadaumeunens 7

Andres Vallejo and Scott M. Reiber, Predicting the

Remedy for Unconstitutional State Taxes: A

Review of Recent Decisions Under the McKesson

Framework, TAX MANAGEMENT MULTISTATE TAX

REPORT, Vol. 16, No. 1............. ssiadaibaiadsiahinastediains 23

Virginia Pub. Doc. Rul. No. 91-258 (10/28/1991).... 10

No. 08-916

IN THE

Supreme Court of the United States

VFJ VENTURES, INC., F/K/A VF JEANSWEAR,

INC.,

Petitioner,

Vv.

G. THOMAS SURTEES, IN HIS OFFICIAL CAPACITY AS

COMMISSIONER OF THE DEPARTMENT OF REVENUE

FOR THE STATE OF ALABAMA,

AND THE ALABAMA DEPARTMENT OF REVENUE,

Respondents.

On Petition for Writ of Certiorari to the

Supreme Court of Alabama

BRIEF OF

INSTITUTE FOR PROFESSIONALS

IN TAXATION

AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

INTEREST OF THE AMICUS CURIAE

This brief amicus curiae in support of

Petitioner, VFJ Ventures, Inc., f//k/a VF Jeanswear,

Inc. (“VFJ”), is filed on behalf of the Institute for

Professionals in Taxatior (IPT”’).' IPT is a non-

ee —

‘Pursuant to Sup. Ct. Rule 37.6, amicus Institute for

2

profit educational organization that seeks to promote

uniform and equitable administration of state taxes.

IPT has more than 4,500 members representing

more than 1,400 businesses across the United States

and in Canada. Represented within I[PT’s

membership are numerous small businesses and

most of the Fortune 500 companies spanning all

major industries. IPT members represent some 387

corporations doing business ip Alabama and states

with add-back statutes that are similar to the

Alabama statute at issue here.

SUMMARY OF ARGUMENT

Hundreds of America’s major businesses have

had their due process rights violated by Alabama,

causing them significant harm for which they can

never be fully compensated. Therefore, the Court

should grant VFJ’s cert petition now and put an end

to the violation, so that the damage can be mitigated.

The Alabama add-back statute challenged by VFJ

denies due process to businesses because it

determines a corporation’s Alabama tax base by

reference to a factor that has no rational relationship

to the corporation's in-state values — the tax policies

of other states.

The past eight years have seen a proliferation

of similar add-back statutes around the country.

Today, twenty other states and the District of

Professionals in Taxation states that no counsel for a party has

written this brief in whole or in part and that no person or

entity, other than amicus, its members, or counsel, has made a

monetary contribution to the preparation or submission of this

brief. Both parties have consented to the submission of this

brief in letters filed with the Clerk

3

Columbia also have add-back statutes that suffer

from constitutional defects, and more states have

recently considered adoption of such measures. This

accelerating trend toward state use of add-back

statutes to tax extraterritorial values, in violation of

corporate taxpayers’ due process rights, must be

stopped now.

The danger and the damage are not limited to

the serious harm that is specific to America’s

businesses, for add-back statutes also undermine

another national interest of preeminent importance:

they authorize a state to tax income that is

unquestionably attributable to other _ states.

Such extraterritorial taxation has long been

recognized by this Court to be a pernicious threat to

the very foundation of our economic cohesion as one

nation — the maintenance and protection of a single

nationwide free-trade zone that the Commerce

Clause has long been understood to guarantee. The

writ should be granted.

REASONS WHY THE WRIT SHOULD BE

GRANTED

I. IMPORTANT CONSTITUTIONAL QUESTIONS

WILL GO UNRESOLVED UNLESS THE

WRIT IS GRANTED

The apportionment question raised by VFJ’s

cert petition — how much income is attributable to

and thus taxable by the state? — implicates both the

Commerce Clause of the United States Constitution

and the Due Process Clause of the Fourteenth

Amendment. 2

2U.S. Const. art. I, §8, cl. 3; U.S. Const. amend. XIV.

A. Alabama Has Undermined the Integrity of

Our System of Interstate Commerce by

Unfairly Apportioning Income

The Alabama add-back statute enlarges the

portion of a taxpayer’s income attributed to Alabama

by the amount of a taxpayer’s expenses for royalties

and interest paid to an affiliate, except “to the extent

that the corresponding item of [royalty and

interest] income was .... subject to tax ... in Alabama

or any other state.”8

This statute, on its face, raises a fundamental

issue of constitutional law: Can a state tax income

not properly attributable to it, simply because no

other state has chosen to tax it? More specifically,

when only a certain portion of a company’s income is

concededly subject to tax by a state, does the United

States Constitution permit that state to enlarge the

share it taxes by an amount not properly attributable

to it, sumply by reason of the taxpayer’s payments to

an affiliate that is not taxed on the corresponding

income elsewhere?

The add-back adjustment in question operates

wholly without regard to the quantum or portion of

VFJ’s multistate business activities in Alabama; it

was triggered by VFJ’s payment of royalties to an

out-of-state affiliate located in a jurisdiction that did

not tax the affiliate’s royalty income. Identical

payments would have been deductible under the

Alabama statute if made to an affiliate in Alabama

or in another jurisdiction that taxes such royalty

income on a separate return. The issue considered

here thus is of the statute’s facial invalidity under

3 Ala. Code §40-18-35(b)(1).

)

the fair apportionment requirement 01 une Commerce

Clause, in particular whether that command

tolerates an apportionment scheme which entirely

disregards any taxpayers business activities in

Alabama and looks instead to the tax treatment of an

affiliated entity’s income in another jurisdiction.

1. The Commerce Clause Protects Our

National Free-Trade Zone from

Extraterritorial Taxation by States

A tax on multistate income must. be

nondiscriminatory and “properly apportioned to local

activities within the taxing State... .’4 The Court

has linked the requirements for nondiscrimination

and fair apportionment, observing that “[a] tax that

unfairly apportions income from other states is a

form of discrimination against interstate commerce.”5

It has said that those two dictates work together to

“prohibit taxes that pass an unfair share of the tax

burden onto interstate commerce." Among the

constitutional objectives served by the fair

apportionment and nondiscrimination requirements

as limitations on state taxing powers is that of

maintaining an open economy.’

The Commerce Clause assures a national

marketplace unfettered by state revenue measures

that would interfere with transactions in interstate

4 Northwestern States Portland Cement Co. v.

Minnesota., 358 U.S. 450, 495 (1959).

5 Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue,

483 U.S. 232, 247 (1987).

6 Quill Corp. v. North Dakota., 504 U.S. 298, 313 (1992).

7 Moorman Mfg. Co. v. Bair, 437 U.S. 267, 289 (1978)

(Powell, J., dissenting): see also, Complete Auto Transit, Inc. v.

Brady, 430 U.S. 274 (1977).

6

commerce. Exemplary of offending measures is the

example Alexander Hamilton gave in The Federalist

No. 7 of New York laying auties on imports that

would be paid by residents of Connecticut and New

Jersey, as to which the author rhetorically asked:

“Would Connecticut and New Jersey long submit to

be taxed by New York for her exclusive benefit?”

Hamilton also argued in The Federalist No. 11 for

“an unrestrained intercourse between the States,”

pointing out that the alternative would be that

commercial “intercourse [among the states] would be

fettered, interrupted and narrowed by a multiplicity

of causes,” when what is needed instead is a “unity of

commercial, as well as political interests.”!°

The Alabama add-back scheme is precisely one

such sub-national political interference with the free

flow of commercial transactions among the states.

On its face, the statute arrogates taxable income to

Alabama simply because other states have chosen

not to tax it, and thus in practice the statute serves

to interrupt interstate commerce by discouraging

corporations subject to Alabama tax from doing

business in states whose tax policies do not coincide

with those of Alabama.!'! The statute has the kind of

narrowing, or channeling effect, of which Mr.

8 See Boston Stock Exch. v. State Tax Comm'n, 429 U.S.

318, 329 (1977).

9 The Federalist No. 7, at 63 (Alexander Hamilton)

(Clinton Rossiter ed., 1961).

10 The Federalist No. 11, at 89-90 (Alexander Hamilton)

(Clinton Rossiter ed., 1961).

11 Alabama's attempt to clothe the statute with facial

neutrality by foregoing the add-back adjustment for interstate

transactions with some, but not other, states is unavailing. See

New Energy Co. of Ind. v. Lumbach, 486 U.S. 269, 274-75 (1988)

and decisions cited there rejecting such alliances of reciprocity.

fs

Hamilton wrote. Allowing such measures to stand

would invite the spider-webbing of interstate

commerce with a “multiplicity” of provincial causes, a

result that is pernicious to our economic freedoms as

a nation. |

2. The Statute Is Per Se Invalid Because,

on Its Face, Its Operation is Triggered

by Out-of-State Events

It is unlawful for Alabama to tie Alabama tax

liability to matters that occur solely in other states.

A respected constitutional scholar has noted that the

Court’s precedents have established “a virtually per

se rule of invalidity for extraterritorial state

regulations,” including “laws whose operation is

triggered by out-of-state events.”!2 The Alabama

add-back statute, which triggers an increase in an in-

state royalty payors tax lability based upon an

out-of-state event — taxation or non-taxation of the

corresponding income recipient elsewhere — is just

such a law. Consequently, the Alabama add-back

statute is per se invalid under the Commerce Clause.

Furthermore, an expense disallowance law

“whose operation is triggered by out-of-state events”

abandons the necessary rational connection between

the taxpayer's in-state activity and its tax base in

that state. In response to an earlier contention that

the Michigan single business tax failed the “external

consistency” test under the Commerce Clause,!3 the

12 Laurence H. Tribe, AMERICAN CONSTITUTIONAL LAW, §

7-8 at 1064, (3d. ed.) z000.

13. In Container Corp. of Am. v. Franchise Tax Bd., 463

U.S. 159, 169 (1983), the Court held that fair apportionment

demands external consistency: apportionment must “actually

8

Court framed the inquiry as whether “there is no

rational relationshin between the tax base measure

attributed to the State and the contribution of

Michigan business activity.”!4 Fair apportionment

demands the presence of such a rational relationship.

A statute attributing income to a taxing jurisdiction

when there is no reasonable connection between that

income and the in-state business activities of the

taxpayer is irrational, and therefore necessarily fails

to “fairly apportion” income to that state.

While some arrangements may need proof that

the statute works an irrational and therefore unfair

result, others may be judged irrational on their

face.15 In Hunt-Wesson,'§ the Court struck as invalid

on its face a California statute disallowing a

deduction for interest expense in an amount equal to

“certain out-of-state income ... that the state could

not otherwise tax.”!7 The Court did not require proof

of the statute’s impact in practical application, for

the statute failed on its face to “actually reflect a

reasonable sense of how income is generated” — the

dictate of the external consistency test.!8

The same may be said of the Alabama

add-back statute. On its face, the statute determines

the deductibility of a taxpayer’s royalty expenses on

reflect a reasonable sense of how income is generated.” /d.

14 Trinova Corp. v. Mich. Dep’t of Treasury, 498 U.S.

358, 380 (1991).

15 See Norfolk & W. Ry. Co. v Mo. State Tax Comm'n,

39u U.S. 317, 325 (1968) (‘Any formula used must bear a

raticnal relationship, both on its face and in its application, to

property values connected with the taxing State”).

16 Hunt-Wesson, Inc. v. Franchise Tax Bd., 528 U.S. 458

(2000).

17 Td., at 460.

18 Jd., at 466 (quoting Container Corp., 463 U.S. at 169.)

9

whether the corresponding royalty income is taxed

elsewhere. This determinative factor does not

“accually reflect a sense of how [the] income is

generated,”19 so the Alabama add-back statute is

unconstitutional on its face.

It may be worth mentioning here another way

in which the statute is irrational and facially

distortive: The statute adds back the royalty

payments as “income” to FJ without any offset for

the expenses of generating that income. Were

Alabama to tax the income in the hands of the

parties that earned it (Lee and Wrangler), that tax

base amount would be reduced by those corporations’

expenses. Moreover, the amount of their income

subject to tax in Alabama would be calculated by

reference to Lee’s and Wrangler’s apportionment

factors, not VFJ’s. The Court has not ruled but

recently commented upon the possible constitutional

dimensions of such a disconnect.2®

3. The Statute Invalidly Aims to Tax

Income Attributable to Other States

The Commerce Clause “external consistency”

test articulated in Container?! was later explained by

the Court to encompass more than the rationality

concern addressed above. InJdJefferson Lines, the

Court described this additional concern as follows:

External consistency . . . looks . . . to the

economic justification for the State’s claim

19 Id.

20 See MeadWestvaco Corp. v. Ill. Dep’t of Revenue, 128

S.Ct. 1498, 1509, n.4 (2008).

21 Container Corp., 463 U.S. at 169.

10

upon the value taxed, to discover whether a

State’s tax reaches beyond that portion of

value that is fairly attributable to activity

within the taxing State.?2

A common economic justification for add-back

statutes is that they enable the state to tax certain

items of income that go untaxed by any state —

amounts that have been pejoratively characterized

in this and other contexts as “nowhere income.”2%

Such legislative justifications are invalid, for the

targeted income is in fact “somewhere,” even when

the jurisdictions to which these amounts are properly

attributable are simply not taxing it for tax policy or

other reasons. A decision by one state not to tax is no

justification for another state to enlarge its tax base

by the amount of the non-taxing jurisdiction’s

attributable portion of the company’s multistate

income.

The Alabama _ statute is an aggravated

transgression of the constitutional fair

apportionment requirement for the reason that its

very object is to enlarge the Alabama tax base

beyond the income that is properly attributed to

22 Oklahome Tax Comm'n v. Jefferson Lines, Inc., 514

U.S. 175, 185 (1995).

23 See, e.g., Geoffrey Inc. v. S.C. Tax Comm’n., 437

S.E.2d 13, 17, n. 1 (S.C. 1993) (“The net effect of this corporate

atructure [payment of royalties to an out-of-state affiliate] has

been the production of ‘nowhere’ income .. .”). See also,

American Tel. & Tel. Co. v. Wisc. Dept. of Rev., 422 N.W.2d 629,

635 n. 16 (Wisc. Ct. App. 1987); Lanco, Inc. v. Dir., Div. of

Taxation, 21 N.J. Tax 200 (N.J. Tax Ct. 2003), rev'd, 879 A.2d

1234 (N.J. Super. App. Div. 2005), affd, 908 A.2d 176 (NJ.

2006); Caterpillar Tractor Co. v. Dept. of Rev., 8 Or. Tax 236

(Or. T.C. 1979); Virginia Pub. Doc. Rul. No. 91-258 (10/28/1991).

11

Alabama. Lee and Wrangler are headquartered in

Delaware and have their offices and all their

employees there.24 From that location they do

business, not just with VFJ but with unrelated third

parties as well.25 VFJ’s payment of royalties to Lee

and Wrangler were determined by the lower courts to

be ordinary and necessary expenses of doing

business,26 and the corresponding royalty income was

received by Lee and Wrangler.

If the State of Alabama were taxing Lee and

Wrangler directly (it is not), Alabama would

attribute none of this royalty income to Alabama

because the State, through its adoption of the

Multistate Tax Compact,?? attributes receipts from

the sale of intangibles to the state where the greater

proportion of income-producing activity occurs —

Delaware, for Lee and Wrangler. 78 Thus, for

apportionment formula purposes, Alabama

recognizes that the receipts from the royalty

transactions here are properly identifiable with

Delaware, not Alabama.

The Alabama add-back statute, however,

reflects the legislature’s discontent with these

normal rules for attributing such royalty income to

affiliates over which the State does not (or cannot)

24 See VFJ Ventures, Inc. v. Surtees, No. CV-03-3172

(Cir. Ct. Montgomery County, Ala. Jan. 24, 2007); App. to Pet.

Cert. 69a.

25 Td.

26 See Surtees v. VFJ Ventures, Inc., No. 2060478, 2008

WL 344118, at *il (Ala. Civ. App. Feb. 8, 2008); App. to Pet.

Cert. at 28a.

27 See §17 of the Multistate Tax Compact, available at

http://www.mte gov.

28 See Ala. Code §40-27-1; see also §17 of the Multistate

Tax Compact.”

12

assert taxing jurisdiction. In such a case, the

add-back statute disregards the usual attribution of

the receipts to Delaware. Sensing a revenue

opportunity created by Delaware’s tax policy

(exemption of this type of royalty income from

Delaware taxation), Alabama uses the add-back

statute to shift that Delaware income into the

Alabama tax base.

In this very real sense, then, the Alabama

statute is intentionally distortive. Rather than

making an effort to “reasonably” reflect the

geographic location where the subject income is

earned, it does precisely the opposite. It purposefully

eschews that attribution — solely because the

jurisdiction with which the income is rationally

identifiable has chosen not to tax it. The very object,

the only object, of the add-back is income fairly

attributable to a jurisdiction other than Alabama. If

that other jurisdiction elects to tax the income, the

add-back statute stands idle; if that other

jurisdiction elects not to tax the income, the add-back

statute inflates the taxpayer’s Alabama tax base. As

one eminent scholar has observed of such practices,

however, “States do not acquire the power to tax

income earned elsewhere merely because the income

is not taxable where it is earned.”29 The intentional

character of this distortion of income is plain on the

statute’s face.

As a measure which forsakes any effort to

attribute income based on a rational view of where

the income is earned, the Alabama add-back statute

29 1 Jerome R. Hellerstein & Walter Hellerstein, STATE

TAXATION, § 10.63(&], at 10-33 (3d. ed. 2000) (discussing

Luckenbach S.S. Co. v. Franchise Tax Bd., 33 Cal. Rptr. 544

(Cal. Ct. App. 1963), appeal dismissed, 377 U.S. 215 (1964)).

13

falls short on its face of the constitutional demand for

fair apportionment. It reveals patent overreaching of

the taxing jurisdiction’s boundaries simply because

another jurisdiction has chosen not to tax. The Court

should grant the Petition for Certiorari in order to

safeguard the guarantee of fair apportionment that

income attribution be based on a rational effort to

relate the income to the taxpayer's business activities

in the taxing state.

B. Alabama Has Denied Due Process of Law

to VFJ and Other Corporations

Hundreds of major corporations and perhaps

thousands of smaller ones, including businesses

represented in IPT’s membership, are currently

being deprived of their due process rights by the

State of Alabama and twenty-one other jurisdictions

that have adopted similar add-back statutes.°° Even

though a split of state high court authority has not

yet developed on the issues presented here, the Court

should grant the writ now because these due process

violations are serious, widespread, and accelerating.

1. Due Process Protects Corporate

Persons from State Taxation of Values

Not Rationally Related to that State

The Due Process Clause of the Fourteenth

Amendment to the United States Constitution

provides: “nor shall any State deprive any person of

life, liberty, or property, without due process of

law.”3! The Constitution guarantees due process to

30 See statutes cited infra n. 43.

1 U.S. Const. amend, XIV, §1

14

corporate persons as well as natural persons,??

aiming in both contexts to ensure the maintenance of

“traditional notions of fair play and substantial

justice.”"* Taxation, of course, deprives a corporate

person of its property, so the question with which

this case is centrally concerned — how much of a

corporate person’s income is properly attributable to

(and thus taxable by) a particular state — is a

question with significant due process implications.

The Court, while recognizing “the difficulty of

identifying the geographic source of the income

earned by a multistate enterprise,”*4 has repeatedly

applied the following due process principle to such

questions: “[T]he income attributed to the State for

tax purposes must be rationally related to ‘values

connected with the taxing State." In a Slightly

different formulation, the Court has explained that a

taxing scheme violates due process rights if there

does not exist “a rational relationship between the

income attributed to the State and the intrastate

values of the enterprise.”%6

32 See e.g., First Nat'l Bank v. Bellotti, 435 U.S. 765, 780

(1978) (citing, Santa Clara County v. Southern Pacific R.R. Co.,

118 U.S. 394 (1886); Covington & Lexington Tpk Rd. Co. v.

Sandford, 164 U.S. 578 (1896)).

33 Quill, 504 U.S. at 307 (citation omitted).

34 ‘Tyinova Corp. v. Mich. Dep't. of Treasury, 498 U.S

358, 373 (1991).

35 Moorman Mfg. Co., 437 U.S. at 273 (1978) (quoting

Norfolk & Western Ry. Co., 390 U.S. at 325 (1968); see also,

Mobil Oil Corp. v. Comm’'r of Taxes of Vt., 445 U.S. 425, 437

(1980).

36 Kxxon Corp. v. Wis. Dep't. of Revenue, 447 U.S. 207,

219-20 (1980) (quoting Mobil Oil Corp., 445 U.S. at 437).

15

2. The Statute Constitutes a Facial Denial

of Due Process Because It Is

Qualitatively Irrational to Determine

Any Corporation’s In-State Values

Based on Another State’s Tax Policies

State tax statutes may attribute to a corporate

taxpayer's in-state tax-base only those amounts that

are rationally related to the taxing state. One of the

most fundamental ways that state tax statutes aim

to achieve this rational attribution is by allowing

deductions for amounts paid to others.3’ Alabama,

hke most states, starts out on the right path by

taking as its starting point for the tax-base

calculation the corporation’s federal taxable income,

a sum which already has such deductions netted

out.38

Alabama does not stop there, however. With

its add-back statute, the State proceeds to impose a

critical limitation: An Alabama corporate taxpayer's

deduction for certain expenses is allowed (that is,

those amounts are removed from the corporation's

Alabama tax base) only “to the extent” of the

taxability by other states of the corresponding

income in the hands of the recipient. To be precise,

the statute bases the add-back determination

(disallowance of the deduction) on whether the

37 Two corollary approaches, nearly universally applied

by the states in conjunction with the deduction approach, are

formulary apportionment, and division of the tax base between

apportionable (“business”) income/expense and _ allocable

(“nonbusiness”) income/expense. These tools all must comply

with the due process requirement that the state apply its tax

only te a corporation's values that are rationally connected to

that state.

38 Ala. Code § 40-18-33

16

related-party payment-recipient is “subject to tax”

somewhere — and then only if the taxing states have

adopted tax regimes that, like Alabama’s, require

separate legal entities to file separate tax returns

rather than taxing an entire unitary group of related

corporations on a combined basis.*® Thus, taxpayers

may be entitled to exemption from the add-back to

the extent the recipient of the income is taxed in

certain states, but not if the recipient is taxed in

others. Thatis, the Alabama add-back statute

attributes income to the Alabama tax base of a

corporation based upon the tax policy of other states.

Put another way, Alabama’s add-back scheme

irrationally posits a non-existent linkage between (I)

another state’s failure to tax an affiliated recipient’s

income and (II) the measure of the payor’s income

that is properly attributable to Alabama. By its very

design, the add-back statute turns on an entirely

extraneous factor — the recipient state’s tax policies.

This factor neither measures, nor bears any rational

relationship to, the extent of the payor’s business

activities in the taxing jurisdiction — the central

concern of due process analysis in this context.

In order to appreciate the true irrationality of

the Alabama add-back statute, one might consider a

hypothetical “blue eyed officer” add-back statute.

Imagine a state statute that denies deductions for

interest and _ royalties paid to _ related-party

corporations — but only to the extent that the officers

of the recipient corporation have blue eyes.

(No deduction is allowed if all the officers have blue

eyes, 75% of the deduction is added back if ‘'three-

quarters have blue eyes, etc.) This is the kind of

39 Ala, Code § 40-18-35(b)(1)

17

irrationality that IPT’s membership faces, indeed

what all affected businesses face, when confronted

with the Alabama add-back statute and the other

strikingly similar add-back statutes in other states.

When related-party expense deduction denials are

based on the tax policy of other states, they may as

well be denied based on officer eye color, for neither

standard is rationally related to corporate values

connected with the taxing state.

It may be noted that the appeals court decision

in VFJ Ventures, adopted in its entirety by the

Alabama Supreme Court, limits its due process

discussion to what one might call the “quantitative

irrationality” analysis in the Hans Rees*® decision of

this Court.4! This quantitative irrationality analysis

looks at numbers or percentages — comparing the

apportioned tax base produced by the challenged

statutory scheme to a hypothetically “correct” tax

base, and asks whether the statutory result is “out of

all appropriate proportion to the business

transacted” by the taxpayer in the taxing state./?

The “blue-eyed officer add-back” hypothetical

demonstrates that the due _ process “rational

relationship” requirement must necessarily have not

only a quantitative aspect but a qualitative aspect as

well. As demonstrated above, the Alabama add-back

statute utterly fails qualitative irrationality analysis.

VFJ’s cert petition asks the Court to review

this case so the Court can tell America’s businesses

whether Alabama’s add-back statute — which makes

40 Hans Rees’ Sons, Inc. v. North Carolina, 283 U.S. 123,

134 (1931).

41 Surtees v. VFJ Ventures, Inc., 2008 WL at *25; App. to

Pet. Cert. at 58a.

42 Hans Rees’ Sons, Inc., 283 U.S. at 135.

18

the tax policy of other states the touch-stone for

determining whether a corporation’s Alabama tax

base should be enlarged — satisfies the “rational

relationship” test of Norfolk, Moorman, Mobil Oil,

Exxon, and other decisions. The Court should grant

the writ sought by VFJ in this case in order to bring

a prompt halt to the actions of Alabama and many

other states, which are trampling’ without

compunction on the due process rights of business

taxpayers across America.

Hl. THE NEED FOR REVIEW IS URGENT

A. The Proliferation of Similar Statutes

Around the Country, and Continuing

Uncertainty Regarding Their Validity,

Impose Onerous Compliance Costs on

America’s Businesses

This Court should grant review because the

same facial constitutional defects inhere in numerous

similar state laws. If this Court declines to answer

the question now, the effect on the nation’s economy

will be serious. The issue presented in this appeal is

more than academic. It has severe practical

implications for any corporation doing business in

more than one state. There are two reasons for this.

First, add-back statutes are rapidly

proliferating. Twenty of the twenty-two add-back

statutes were enacted within the last eight years.‘

43 Twenty-one states and the District of Columbia now

have add-back statutes. All were enacted during or after 2001,

except for Connecticut's add-back (enacted in 1998) and Ohio’s

audd-back (enacted in 1991). See, Alabama (Ala. Code § 40-18-

35(b)); Arkansas (Ark. Code Ann. § 26-51-423(g)); Connecticut

(Conn. Gen. Stat. § 12-218c); District of Columbia (D.C. Code

19

Several other states have recently considered such

statutes.44 The trend is not surprising. States have

been attempting to export their tax burdens since as

far back as the 1780’s, when the Constitution was

adopted.45 But the concern for the national economy

Ann. § 47-1803.03(a)(19)); Georgia (Ga. Code Ann. § 48-7-

28.3(b)); Illinois (35 Ill. Comp. Stat. 5/203(b)(E-12), (E-13));

Indiana (Ind. Code Ann. §§ 6-3-1-3.5(b)(9), 6-3-2-20); Kentucky

(Ky. Rev. Stat. Ann. § 141.205); Maryland (Md. Code Ann., Tax-

Gen. § 10-306.1); Massachusetts (Mass. Gen. Laws Ann. ch. 63,

§§ 31I, 31J); Michigan (Mich. Comp. Laws § 208.1201(2)(f));

Mississippi (Miss. Code Ann. § 27-7-17(2)); New Jersey (N.J.

Stat. Ann. §§ 54:10A-4; 54:10A-4.4); New York (N.Y. Tax Law §

208.9(0)); North Carolina (N.C. Gen. Stat. §105-130.7A); Ohio

(Ohio Rev. Code Ann. § 5733.042); Oregon (Or. Admin. R. 150-

314.295); Rhode Island (R.I. Gen. Laws § 44-11-11(f)); South

Carolina (S.C. Code Ann. § 12-6-1130); Tennessee (Tenn. Code

Ann. §§ 67-4-2006(b)(1)(K); 67-4-2006(d)); Virginia (Va. Code

Ann. §58.1-402(B)); Wisconsin (Wis. Stat. §§ 71.26(2)(a),

71.80(23)).

44 Pennsylvania and Minnesota each _ introduced

legislation in 2005. See H.B. 518, 2005 Gen. Assem., Reg. Sess.

(Pa. 2005); H.B. 660, S.F. 753, 2005 Leg., 84th Sess. (Minn.

2005). Anecdotal reports indicate that Texas, Iowa, Missouri,

and West Virginia have also considered implementing add-back

statutes. See e.g., Michaei S. Schadewald, Deducting Related-

Party Interest and Intangible Expenses (2005),

http://www.aicpa.org/pubs/taxadv/online/may2005/schadewald

-htm; Joe Garrett and Kelly W. Smith, Add-Back Statutes:

Where Do We Go From Here?, Presentation at 2005 SEATA

Conference (July 12, 2005), http://www.seatastates.org/

am_2005/garrett.pdf); E. Kendrick Smith and Matt Cristy,

Georgia Gets A Grasp On Passive Investment Companies: New

Addback Statute Reaches Intangible And Interest Income

Flowing From The State (2005), http://‘www.jonesday.com/files/

Publication/790 16b8a-09fb- 4dcc-b235-5a9c2 1 fa29a9/Presentatio

n/PublicationAttachment/4a6d 1845-d6ca-4a03-88d25c97dc36a7

02/Dec2005_Smith_Cristy.pdf.

4 See e.g., Brannon P. Denning, Confederation-Era

Discrimination Against Interstate Commerce and the Legitimacy

20

constrains what might be considered good local

politics, and it is the responsibility of the courts to

“more consistently and coherently bar

[unconstitutional] tax exportation.”4®

Second, these statutes are _ particularly

insidious because their effectiveness is directly

linked to similar efforts by other states to export

their tax burdens. That is, these statutes necessaruy

piggyback on other states’ policy choices. They

impact, and are impacted by, the tax laws of any

other state in which a company does business. As a

result, each change in any state tax law has the

potential not only to alter a _ taxpayer's

responsibilities in the state where the change

occurred, but also to create a domino effect, upending

the tax responsibilities for a single corporation in

multiple states across the nation.

The burdens of complying with this Rubik’s

Cube of state laws are substantial. According to

statistics from the Internal Revenue Service,

businesses spent over three trillion hours to comply

with the federal tax system in 2005. Small

businesses accounted for over one trillion of those

hours.47 Compliance with the state tax systems of

of the Dormant Commerce Clause Doctrine, 94 Ky. L.J. 37, 53

(2005/2006) (noting that states’ unwillingness to cede control

over the levying of imposts and duties during that era was “due

to the fact that such measures were a way to raise revenue

without directly taxing their citizens.”).

46 See, e.g., Daniel Shaviro, An Economic and Polittical

Look at Federalism in Taxation, 90 MICH. L. REV. 895, 897

(1992).

47 See J. Scott Moody, Wendy Warcholik, & Scott A.

Hodge, The Rising Cost of Complying with the Federal Income

Tax, Tax Foundation Special Report No. 138, 1, 8 (Table 5) (Dec.

2005).

21

the fifty states is significantly more burdensome,

especially where, as here, states attempt to capture

revenue based solely on another state’s decision not

to claim it.48 To the extent that a company’s tax

liability is altered, the “piggybacking” of add-back

statutes requires a company to review and analyze

the procedural requirements for reporting such

change in all relevant jurisdictions, recompute the

liability, and issue the documentation necessary to

meet those varying requirements. Further, the

company may have to pay additional tax to several

jurisdictions. The piggy-backing effect of the

interaction between state add-back statutes and tax

changes in other states makes it nearly impossible

for companies to anticipate, even approximately,

their state tax liability for a given period.

If the add-back statutes are permitted to

stand, businesses will continue to be subject to the

hefty compliance costs of a shifting, interdependent

system of state tax laws, as well as the penalties and

interest assessments associated with any inadvertent

errors. The only way for corporations to avoid these

burdens would be to restructure theu entire

organizations — and to review their structure again

and again each time one state’s change in the

taxation of royalties or interest caused a domino

effect across the nation — in an effort to accommodate

these unconstitutional laws. Such restructuring

itself comes with substantial costs. Not only must

corporations pay for the planning and

4 See Sanjay Gupta and Lillian Mills, Does

Disconformity in State Corporate Income Tax Systems Affect

Compliance Cost Burdens?, NATIONAL TAX JOURNAL 56:2, 355

(June 2003) (indicating that state tax compliance costs are

roughly double federal tax compliance costs).

22

implementation of these corporate changes, but they

would also necessarily lose multiple benefits and

efficiencies inherent in the corporate structure they

have lawfully chosen.‘9

In non-recessionary times, these lost

efficiencies and restructuring costs would be onerous.

In the midst of faltering sales activity, declining

profits, business closures, layoffs and bankruptcies,

however, the effect is exacerbated. These burdens

would be particularly damaging to small business. A

decision from this Court could prevent states from

continuing to enforce these unconstitutional laws and

further weakening the nation’s economy in this way.

B. America’s Businesses Will Never Be Made

Whole, But Prompt Resolution Will

Mitigate the Damages

The issue addressed by this appeal is

particularly time-sensitive. Failure to resolve it now

will subject businesses to irreparable harm. Until

this Court declares the Alabama add-back statute

invalid, companies will continue to be compelled to

pay unconstitutional taxes that they may never

recover. Almost twenty years after this Court

required states to provide “meaningful backward

looking’ relief’ for taxpayers subjected’ to

unconstitutional taxes, “taxpayers remain unsure

49° As the trial court recognized below, VFJ’s

organizational! structure has significant non-tax benefits, such

as improving quality control and oversight of infringement

defense, thereby protecting the value of the property, fostering

detailed profit analysis, insulating the property from certain

liabilities, preventing hostile takeovers, increasing liquidity,

and creating economies of scale. See Surtees v. VFJ Ventures,

Inc., 2008 WL at *6: App. to Pet. Cert.‘€t 17a.

23

about the remedies they can expect” once such

statutes have been declared unconstitutional.5° In

fact, “States continue to attempt to avoid paying full

refunds to taxpayers....”51

Alabama, in particular, has a history of

delaying or refusing refunds to taxpayers who

remitted tax pursuant to statutes later deemed to be

unconstitutional. As recently as September, 2008,

the Alabama Supreme Court applied a standard

articulated by the lower court for allowing a state to

“refus[e] to give a remedy” for tax paid under an

unconstitutional statute when “the state relied on

now overturned precedent and the state now faces an

extreme hardship if it must give a remedy.”

Although it is unclear what constitutes “extreme

hardship,” this option could permit a state to refuse

refunds to those taxpayers who paid large sums to

the Department, or to refuse refunds in the event

that mumerous taxpayers had _ remitted the

50 Andres Vallejo and Scott M. Reiber, Predicting the

Remedy for Unconstitutional State Taxes: A Review of Recent

Decisions Under the McKesson Framework, TAX MANAGEMENT

MULTISTATE TAX REPORT, Vol. 16, No. 1 at 9 (citing McKesson

Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18

(1990)).

51 Jd. See also, Press Release, California Controller

John Chiang, Chiang Announces Payment Delays to Manage

Cash Crisis (January 16, 2009) (announcing blanket delays for

tax refunds to business and individuals due to state cash flow

problems).

52 Wx parte Surtees (Vulcan Lands, Inc. v. Surtees), Nos.

1070386, 1070399, 2008 WL 4369259, at *3 (Ala. Sept. 26,

2008), (citing Vulcan Lands, Inc. v. Surtees, No. 2060607, 2007

WL 4215046, at *7 (Ala. Civ. App., Nov. 30, 2007)). The Court

ultimately held that the Department did not meet the standard,

having failed to show that it relied on now overturned

precedent.

24

unconstitutional tax. At the very least, the Alabama

decision reflects an intent to deny some refunds of

taxes unlawfully collected. The refunds at issue in

the Vulcan Lands case involve payments of

Alabama’s foreign franchise tax, which this Court

held to be unconstitutional ten years ago.53

CONCLUSION

Amicus respectfully submits that there is an

urgent need for the Court to grant the writ in this

‘ case and move promptly to strike down Alabama’s

add-back statute which, like the twenty-one similar

statutes across the country, denies America’s

businesses due process of law and undermines the

integrity of the national free-trade zone that the

Commerce Clause protects. Any delay will make it

likely that affected businesses will never be

adequately recompensed for their damages, and will

also encourage more states to adopt add-back

statutes that will continue to impair the free flow of

commerce among them. The Court must make it

clear to the states that such laws are impermissible.

A failure to act will allow not just the continuation of

irrational and overreaching taxation, but a

continuing escalation of such measures by states

anxious to reach values and income beyond their

borders.

53 South Cent. Bell Tel. Co. v. Ala., 526 U.S. 160 (1999).

25

Respectfully submitted,

CASS D. VICKERS DONALD M. GRISWOLD

(Counsel of Record) Reed Smith LLP

Institute for Professionals 1301 K Street N.W.

in Taxation Suite 1100 — East Tower

1200 Abernathy Road NE Washington DC 20005

Atlanta, GA 30328 (202) 414-9200

(850) 907-0692

SARA A. LIMA

Reed Smith LLP

1650 Market Street

Philadelphia, PA 19103

(215) 851-8100

Attorneys for Amicus Curiae

Institute for Professionals in Taxation

February 20, 2009