Protecting Taxpayers from Fragmented State-by-State Interpretations of the Federal Tax Code — Centerior Energy Corp. v. Mikulski

Download Brief of Amicus Curiae in Support of Petition for Certiorari?Centerior Energy Corp. v. Mikulski

U.S. Supreme Court No. 07-961
Amicus Curiae Brief In Support of Petition for Certiorari
Filed February 22, 2008
Certiorari Denied May 12, 2008

In May, the U.S. Supreme Court will decide whether to hear the case of Centerior Energy Corp. v. Mikulski, an appeal from a lower court decision opening the door to fragmented state-by-state interpretations of the U.S. tax code. The Tax Foundation filed a friend of the court brief urging the Court to take the case, which raises the question of whether taxes paid to the government can be recovered from a business instead of from the IRS.

Like many taxpayers, Centerior Energy Corp. was confronted with applying complex tax laws to its individual situation. The tax law in question, 26 U.S.C. § 7422, was left ambiguous by Congress, which had expected the IRS to issue further regulations. Since the IRS never did, Centerior and other taxpayers had to choose between two conflicting, but equally plausible, interpretations. The plaintiffs in this case (the Mikulskis) allege that Centerior chose wrongly, and as a result, caused them to overpay their income taxes. The lower court agreed, suggesting that “correct” interpretations of ambiguous tax laws could vary state-by-state.

Fragmented interpretations of the federal tax code exacerbate complexity, harm taxpayers, and inhibit commercial activity. If the lower court plaintiffs are successful, states would declare “official” state interpretations of federal tax laws twenty years after the fact, and businesses would be subject to fraud lawsuits for any actions relying on any other interpretation. A federal tax code with supposedly universal application would end up balkanized with fifty different interpretations. Unless the U.S. Supreme Court acts, the plaintiffs’ success in the Sixth Circuit will harm taxpayers, weaken the Grable test, and undermine the uniform application of the federal tax code.

Click here to read the Tax Foundation’s Fiscal Fact on Centerior Energy Corp. v. Mikulski.

Click here to read the amicus brief.