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State May Not Tax Out-of-State Firms at Higher Rate Than In-State Firms
Description Supreme Court held that an Alabama tax on corporations violated the Commerce Clause by discriminating against interstate commerce. The tax rate was the same on in-state and foreign firms, but foreign firms generally had to use a higher valuation basis for tax calculation purposes.
Topic Constitutional Law
Key Words Commerce Clause, Taxation
C A S E   S U M M A R Y
Facts Alabama requires each corporation doing business in the state to pay a franchise tax based on the firm's capital. The tax for domestic firms is based on par value, which is usually far below market value, while out-of-state (foreign) firms pay taxes based on the value of the actual capital employed in the state. Various firms sued, seeking a refund of the foreign franchise tax paid, contending that it violated the Commerce Clause. The Alabama supreme court held for the state; the foreign firms appealed.
Decision Reversed. The franchise tax on foreign corporations impermissibly discriminates against interstate commerce, in violation of the Commerce Clause. There is no justification for the differential tax rate based on additional services provided to foreign firms.
Citation South Central Bell Telephone Co. v. Alabama, 119 S.Ct. 1180 (Sup. Ct., 1999)

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