Monday, June 24, 2019

U.S. Supreme Court Takes Step Toward Approving Arizona's Major Tax Case Against California (UPDATE)

The U.S. Supreme Court invited the federal government to weigh in on Arizona Attorney General Mark Brnovich's proposed lawsuit against the state of California for stealing millions of dollars in tax revenues from Arizona (and other states).

Arizona filed the case at the end of February. After receiving extra time, California told the Supreme Court in May why the case should not go. After conferencing last week, the Justices today entered a one sentence order stating simply "The Solicitor General is invited to file a brief in this case expressing the views of the United States."

The invitation is a small sign that Arizona's action has some merit. Katie Conner, Spokesperson for the Arizona Attorney General’s Office, agreed: "We are pleased the Supreme Court is taking Arizona's claims seriously and look forward to coordinating with the U.S. Solicitor General.”

As reported earlier on AZ Law, Brnovich's office has already coordinated with various groups and individuals to support the suit. Four friend of court briefs have already been filed supporting Arizona by the Cato Institute, the National Federation of Independent Business, and others.

The proposed complaint alleges that California unconstitutionally taxes Arizona LLCs for doing business in California - even if that LLC is only an investor in another company that does business in the Golden State. The U.S. Constitution (Article III, Section 2) makes the Supreme Court the initial - and, only - court when one state is suing another.

Arizona cites examples of California taxing Arizona LLCs, and even trying to levy against Arizona banks to collect the taxes. Arizona estimates that California's "extraordinarily aggressive" policies of costing Arizona nearly $500,000/year in lost tax revenues (because those businesses pay California and deduct it from their Arizona taxes). Arizona would also seek refunds to the more 13,000 Arizona LLCs that pay more than $10M/year to California. (And yes, Arizona believes other states - and, their LLCs - have been similarly effected.)

(Phoenix attorney Paul Weich contributed this article.)

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