SW Legal Educational Publishing

Missouri Tax Law Concerning Consolidated Returns Unconstitutional
Description Missouri allowed affiliated firms to file consolidated tax returns only if the firms earned at least half their income in the state. The Missouri high court struck down the rule as in violation of the Commerce Clause, as it favors affiliated firms that do the majority of their business in state.
Topic Constitutional Law
Key Words Interstate Commerce, State Taxes
C A S E   S U M M A R Y
Facts GM and its subsidiaries, which have property and income from all states, file federal consolidated income tax returns. A consolidated return permits affiliated corporations to be treated as if they are one corporation for tax purposes. Missouri law did not allow consolidated returns because GM and its 300 plus subsidiaries did not derive at least half of their income from sources within Missouri. GM contested the Missouri law as in violation of the Commerce Clause because the law favors firms that perform the majority of their business within the state.
Decision The Missouri law is unconstitutional. "State laws that facially discriminate against interstate commerce are virtually per se unconstitutional. A state statute may not favor in-state businesses over out-of-state businesses for no reason other than the geographic location of the businesses. The scope and magnitude of the discrimination has no bearing on determining whether the discrimination has occurred." The fifty-percent rule in Missouri penalizes groups, such as the GM Group, that do business in the state, but not enough to qualify for consolidating returns.
Citation General Motors Corp. v. Director of Revenue, - S.W.2d - (1998 WL 887471, Sup. Ct., Mo.) 981 S. W. 2d 561 (Sup. Ct., Mo., 1998)

Back to Constitutional Law Listings

©1997-2000  South-Western, a division of Cengage Learning, Inc. Cengage Learning is a trademark used herein under license.