Professor Ruth Mason Scores Victory for Taxpayers with Influential Supreme Court Amicus

Ruth Mason

For UVA Law professor and tax law expert Ruth Mason, a decade's worth of research recently paid off for her — and for taxpayers — in the Supreme Court case Comptroller of the Treasury of Maryland v. Wynne.

June 25, 2015

University of Virginia School of Law professor Ruth Mason, an expert in comparative taxation, facilitated a victory for tax justice in the U.S. when her amicus brief , co-authored with Michael S. Knoll of the University of Pennsylvania, helped persuade the Supreme Court in its decision last month in Comptroller of the Treasury of Maryland v. Wynne.

The case involved a Maryland couple, Brian and Karen Wynne, who challenged being taxed by the state for income earned outside the state — income they had already paid taxes on elsewhere. Mason and Knoll's analysis showed that the case wasn't about double taxation, however, but about tax discrimination. The court ruled Maryland's tax scheme discriminated against interstate commerce.

"The reason that they found the tax to be discriminatory was due to economic analysis, which we and another amicus brief provided," Mason said. "This case implicated everything I've been working on in my academic research for the last 10 years."

Mason and Knoll filed their amicus in September, and although their arguments were only touched upon briefly in October's oral arguments, the court cited their brief four times in its decision, and also quoted Mason's 2008 article, " Made in America for European Tax: The Internal Consistency Test. "

"Once the decision came out, it was clear the majority relied on our arguments," she said.

The court based its decision in the Commerce Clause of the Constitution. The clause gives the federal government the express power to regulate commerce among the states, and the court has interpreted the clause to have a dormant aspect that restricts states from implementing laws that discriminate against interstate commerce. The recent decision builds on the so-called internal consistency test that the court developed in the 1980s for state tax discrimination cases. The test identifies instances where the taxing scheme discriminates against interstate commerce in comparison to in-state commerce.

"The Supreme Court in Wynneclarified that the internal consistency test applies in any kind of tax discrimination case, which is a helpful clarification," Mason said. "There was genuine confusion before about which cases internal consistency applied to."

She said the concept of internal consistency is simple when broken down: "The court hypothetically assumes that all states implement the challenged state's tax rule. And then the court asks, in this hypothetically harmonized situation, does interstate commerce bear a higher tax burden than in-state commerce? If the answer is yes, then the challenged tax rule discriminates in violation of the dormant Commerce Clause."

Mason said that one of the advantages of the internal consistency test is that it enables the court to consider all components of a state's tax system: taxes on inbound, outbound and domestic sources.

" Wynnemade it clear that when you're doing a tax discrimination inquiry you have to look at all three components of the system," she said. "You cannot ignore any one component. This is really important because the state can bury discrimination — obscure it — in just one component."

Maryland now may owe as much as $200 million in refunds and interest to the Wynnes and other affected residents — and the financial implications may be even higher for the estimated thousands of state and local governments who must reconcile similar tax laws.

"The court did not specify how Maryland had to correct its discrimination," Mason said. "For example, the court didn't say that Maryland had to credit the taxes of other states, but crediting other states' taxes is the easiest way for Maryland or any other state or locality to bring its tax in line with the internal consistency test."

Mason said the principle of internal consistency could be useful to courts outside of the U.S. as well. Her "Made in America" paper, which the court cited, discusses possible applications for the European Union.

"One of the things I've been arguing since 2008 is that the European Court of Justice should use the internal consistency test because it really simplifies these inquiries about whether the state discriminates," she said.

Mason, who is the Hunton & Williams Professor of Law at UVA, joined the tax faculty in fall 2013, having previously taught at the University of Connecticut School of Law. Her scholarly career has been characterized by her interest in international tax issues. In addition to teaching and researching abroad, Mason was national reporter for the United States to the 2008 International Fiscal Association Congress on tax discrimination and to the 2014 European Association of Tax Law Professors Congress on tax information exchange. She is also co-editor (with Ekkehart Reimer of the University of Heidelberg) of Kluwer's Series on International Taxation, and she is a member of the editorial board of the World Tax Journal. She earned her J.D. from Harvard Law School in 2001.

The amicus brief was the first Mason ever filed. She said it was a rare opportunity to participate in a tax discrimination case at the Supreme Court level.

"The Supreme Court doesn't often grant cert in tax discrimination cases," she said. "It's really nice to see the theory get translated into practice and to have an impact."

She said she expects to publish a follow-up paper with Knoll about the recent Supreme Court decision, and the case will be incorporated into her January Term course, Tax Discrimination.



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