On July 2, 2015, TEI filed an amicus brief with the U.S. Supreme Court in a Massachusetts case challenging the application of the internal consistency test, First Marblehead Corp. v. Massachusetts Commissioner of Revenue, No. 14-1422. First Marblehead involves the proper apportionment of financial institution's income under Massachusetts' financial institutions excise tax. The taxpayer claimed that the apportionment formula, as applied by the Massachusetts Supreme Judicial Court (MSJC), violated dormant Commerce Clause because it was not fairly apportioned under the internal and external consistency tests.
The MSJC issued its decision three months before the U.S. Supreme Court issued its opinion in Comptroller of the Treasury of Maryland v. Wynne, No. 13-485 (U.S. May 18, 2015). Wynne confirms that the internal consistency test requires courts to hypothetically assume that every State has the same tax structure and provides a clear and comprehensive example of how courts must evaluate a challenged tax scheme. The MSJC acknowledged that the existence and role of the internal consistency test. However, rather than applying the required hypothetical replication of the challenged tax, the MSJC addressed whether actual multiple taxation was present and concluded that internal consistency was satisfied because the taxpayer's cumulative tax burden was less than 100 percent.
TEI's brief urges the U.S. Supreme Court to issue a "GVR order" that would grant the taxpayer's petition, vacate the MSJC's judgment and remand the action back to the MSJC to apply the internal consistency test articulated in Wynne.
On October 13, 2015, the U.S. Supreme Court issued an order following TEI's recommendation to issue a "GVR order" in First Marblehead.
For additional information regarding First Marblehead, click here.
TEI's brief was prepared under the aegis of TEI's State & Local Tax Committee, whose chair is Gregory Potts. Pilar Mata coordinated and is the principal author of the brief.