Pennsylvania’s Supreme Court today upheld how the state imposes income tax, against a taxpayer’s claim that it imposes double taxation on interstate commerce in violation of the U.S. Constitution’s Commerce Clause. Two of the five justices dissented.
The plaintiff, Diane Zilka, lives in Philadelphia but works in Delaware. She paid four income taxes: 3.922% to Philadelphia, 3.07% to Pennsylvania, 1.25% to Wilmington, and 5% to Delaware.
She requested that Pennsylvania and Philadelphia (6.992% combined) credit her for the 6.25% paid to Delaware & Wilmington. Zilka cited the U.S. Supreme Court decision in Comptroller v. Wynne (2015), which held that states must offer full credits, including local taxes, on interstate income taxes to avoid unconstitutional multiple taxation. Philadelphia refused, only offering to credit against Wilmington's taxes. States credit against states, cities against cities, they argued.
The majority opinion said Philadelphia imposes and collects this tax, not the state, so there is not a requirement to "aggregate" state and local taxes, as they put it. One justice in the majority concurred, saying the result is unfair but what Zilka wanted would expand beyond what the Supreme Court said in Wynne.
Two justices dissented, writing that Philadelphia's taxing power comes from the state, and the practical result here is that Pennsylvania is discriminatorily taxing those engaging in interstate commerce.
I hope the taxpayer appeals this one. The dissenters are correct that the actual effect here is a higher tax burden on interstate income compared to intrastate income, and that there is no constitutional significance in whether a state imposes a tax or authorizes a county, city, town, regional board, or special district to do it.
The majority concurrence is also backward in arguing that taxpayers' constitutional rights can be no broader than what the U.S. Supreme Court has explicitly said. It is government power to harm interstate commerce that should be no broader than what the U.S. Supreme Court has explicitly said.
The case is Zilka v. Tax Review Board, City of Philadelphia, Pa. Nos. J-5A-2023 & J-5B-2023.