Constitutional Challenges to State Taxes Can Go to Federal Court

Tax credits in more than 40 states are now vulnerable to federal court challenges after a Supreme Court ruling Monday.

The court ruled 5-4 that taxpayers can use federal courts to make constitutional challenges to state taxes, the Associated Press reported. A group of Arizona taxpayers sued the state in federal court to oppose income tax credits given to residents who donate money to private schools.

The taxpayers argued that the tax credits are an unconstitutional promotion of religion. The state uses the private school donations to fund grants and scholarships with the idea of giving parents more educational options. The state's tax break allows a dollar-for-dollar credit of up to $500 for an individual and $625 for a married couple.

Arizona argued that the federal courts must not interfere with state tax decisions, citing a 1937 law. Arizona had the backing of 40 other states and the Bush administration in arguing that constitutional challenges to state income tax credits belong in state court.

Justice Ruth Bader Ginsburg, wrote for the majority, "In decisions spanning a near half century, courts in the federal system, including this court, have entertained challenges to tax credits authorized by state law."

Justice Anthony M. Kennedy, in a dissent joined by Chief Justice William H. Rehnquist, and Justices Antonin Scalia and Clarence Thomas, said "state courts are due more respect than this."

You may like these other stories...

Renaissance avoided more than $6 billion tax, report saysThe Senate Permanent Subcommittee on Investigations said on Monday that a Renaissance Technologies LLC hedge fund’s investors probably avoided more than $6...
A new Gallup survey found that 58 percent of smokers in the United States see increased state and federal taxes on cigarettes as an act of unjust discrimination, while 39 percent believe the tax hikes are justified.The...
Liberal groups object to bill barring taxes on Internet accessThe Internet Tax Freedom Act hasn’t been a controversial bill. In fact, it’s so popular that senators are seeking to pair it up with a far more...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.