NTUF Files Brief Urging Supreme Court to Take Case Challenging California’s Cross-Border Taxation

Today the National Taxpayers Union Foundation filed an amicus brief with the Supreme Court in the case of Arizona v. California (2019) supporting Arizona’s effort to secure relief from California’s cross-border taxation. At issue is California’s enforcement of its so-called “doing business” tax on Arizona residents that are merely passive investors in an LLC that is itself invested in a California-based business. This tax is enforced by extra-territorial and extra-judicial seizures of Arizona residents’ bank funds.

Represented in the brief by attorneys Cynthia F. Crawford and James Valvo of the Cause of Action Institute, NTUF argues that California’s assessment of the “doing business” tax on Arizonans presents flagrant Due Process and Commerce Clause violations that the Court should resolve. The brief suggests that in a world where technology empowers governments to more efficiently target out-of-state entities, these “cross-border raids” will become more common absent external restraint.

[Unlike] conventional cross-border raids that rely on physical mobilization, technological advances allow California to reach into Arizona bank accounts without physically traveling outside its own borders. This precedent, if allowed to stand, would allow any state with revenue aspirations to reach passive investors in every other state by using multistate banks as conduits for backdoor extractions. Accordingly, this Court should accept jurisdiction over this matter to allow Arizona to vindicate its rights to protect its borders and the in-state property of its residents.

NTUF launched its “Interstate Commerce Initiative” in 2017 to highlight the growing problem of states attempting to tax and regulate entities outside their border with testimony before the House Judiciary Committee. In 2018, NTUF led the charge to educate policymakers and the Supreme Court about the risks of overturning long-standing precedent restraining states from taxing businesses outside their borders, including a landmark amicus brief in the case of South Dakota v. Wayfair. The case of Arizona v. California (2019) is yet more evidence that some states are bolder than ever in asserting the power to engage in cross-border taxation.

For more on NTUF’s Supreme Court brief supporting Arizona against California, please contact Kevin Glass, NTUF Vice President of Communications, at 703-299-8670 or at kglass@ntu.org.