Recent Supreme Court case emboldens states to test limits of taxing authority

A recent Supreme Court opinion is likely to embolden states to test the limits of their taxing authority by limiting the ways taxpayers can challenge the taxes in court. In Franchise Tax Board of California v. Hyatt, Justice Thomas, writing for the Court, held that states have an inherent sovereign immunity protecting them from law suits in other states. Therefore, according to Thomas, plaintiffs can only sue states in other states if the potential defendant state itself decides to waive the immunity.

While, on the surface, this may not seem likely to impact state tax laws, it is expected that the change will permit states to push the limits of what states have historically been allowed to do. Therefore, it is easy to see how states could use this new precedent to increase the scope and number of enforcement actions against people in other jurisdictions that may owe taxes to the state.

Nobody knows for certain what the long term impact of Hyatt will be but it is definitely something businesses should consider; especially as the new rules for the collection of interstate sales tax begin to emerge from the various states.

If you have any questions or concerns about this topic or any legal or tax matter, contact P. Christopher Wegner at 239.449.9200 or cwegner@wegnerlawfirm.com. You can also visit www.wegnerlawfirm.com any time of day to learn about the law firm is helping businesses grow.