For example, in the case Natural Gas Pipeline Co. v. State Bd. of Equalization, 237 Neb. 357 (1991), the Nebraska Legislature had exempted railroad cars, but not pipelines, from personal property taxation. The Nebraska Supreme Court held this violated the Equal Protection Clause, stating: “The Legislature’s stated justification is illusory. We fail to see any real and substantial difference between personal property used ... by one type of business and the same ... personal property used by another type of business.” DORMANT COMMERCE CLAUSE: U.S. CONSTITUTION The Dormant Commerce Clause (also called the Negative Commerce Clause) is a legal doctrine that is taken from the Commerce Clause in Article I, Section 8 of the U.S. Constitution. That clause, as written, specifically grants the federal government the power to regulate interstate commerce. The Dormant Commerce Clause is a judicially created doctrine that prohibits states from enacting legislation or from adopting rules or practices that discriminate against or unduly burden interstate commerce. This prohibition applies even when Congress has not passed a law on a given subject. As applied to state and local taxes, the U.S. Supreme Court has developed a four-part test that a tax statute (and how it is applied) must meet to be allowed under the Dormant Commerce Clause: 1. The tax must be applied to an activity that has a substantial connection to the state. 2. The tax must be fairly apportioned to activities in the state. 3. The tax must not discriminate against interstate commerce. 4. The tax must be fairly related to services provided by the state. An example of state action in this context is how it applies the income apportionment rules. SPECIAL LEGISLATION CLAUSE: NEBRASKA CONSTITUTION Article III, Section 18 of the Nebraska Constitution specifies that: “The Legislature shall not pass local or special laws in any of the following cases: ... Granting to any corporation, association, or individual any special or exclusive privileges, immunity, or franchise whatever.” The Nebraska Supreme Court has interpreted this to mean that: “A legislative act constitutes special legislation if (1) it creates an arbitrary and unreasonable method of classification or (2) it creates a permanently closed class.” NEXUS: U.S. CONSTITUTION The U.S. Supreme Court has stated that there must “be some definite link, some minimum connection between a state and the person, property, or transaction it seeks to tax.” This link is commonly referred to as “nexus.” If a person or company does not have nexus in a state, the state cannot subject that person or company to tax (or require them to collect tax). As established in the U.S. Supreme Court case Wayfair v. South Dakota, nexus can be both from physical presence or economic presence in a state. So, while nexus may now be easier for states to establish, nexus is still a significant “guardrail.” The nexus “guardrail” is the basis of Public Law 86-272. This federal statute prevents a state from imposing a net income tax on a company’s income derived within the state from interstate commerce if: a) the only business activity performed in the state is the solicitation of orders of tangible personal property; b) such orders are sent outside the state for approval or rejection; and c) the orders, if approved, are filled by shipment or delivery from a point outside the state. CONTINUED ON PAGE 20 19 nescpa.org
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