Daily Tax Report ®

New York’s Tax Logic Slammed in Shoe Icon’s Message to High Court

Sept. 11, 2019, 7:05 PM

Edelman Shoe Co. founders Samuel and Louise Edelman told the Supreme Court it may want to give them a quick win and skip further arguments in their tax fight with New York.

The couple filed their Sept. 11 brief together with a similarly situated couple, Richard Chamberlain and Martha Crum, to rebut New York’s Aug. 23 defense of taxing the intangible income of people who are residents of both New York and another state. A Supreme Court ruling in the multimillion-dollar dispute could affect not only economic activity around New York but also constitutional law for the country.

The Supreme Court has assigned the Edelman and Chamberlain-Crum case for its Oct. 1 conference, where the justices will make decisions on multiple petitions asking to be heard.

The couples told the Supreme Court it may want to consider granting a summary reversal, where it would overturn the New York high court’s decisions without asking for further written briefs or oral arguments on the question.

Otherwise, they said, the high court should ask for further arguments.

New York is engaging in a “protracted exercise in evasion,” the couples said.

The couples insisted a 2015 Supreme Court decision makes clear that New York violated the Constitution’s protection of interstate commerce by taxing them as New York residents on their intangible income, even though they permanently lived in Connecticut, which taxed them on the same income. The decision they referenced is Comptroller of Treasury of Maryland v. Wynne, which struck down a Maryland tax regime.

Justice Samuel Alito wrote for the majority in the Wynne case, saying courts should apply the “internal consistency test,” where they imagine the taxing procedure at issue being adopted by every state. They should then strike it down, he said, if it would place greater burdens on those who cross state lines under the hypothetical.

New York asked the Edelmans for more than $6 million in back taxes that included taxes on intangible income from selling interests in their shoe company, and asked Chamberlain and Crum for more than $2.7 million in taxes on income from selling interests in Chamberlain’s company.

The filing comes after the state of New York filed a brief Aug. 23, arguing its scheme passed the internal consistency test because it didn’t burden interstate commerce given that a resident gets a tax credit for intangible income it can show came from economic activity in another state.

New York also urged the Supreme Court to let the issue be considered in other lower courts before taking it up, to see if a conflict with the lower decision here emerges or at least have multiple decisions addressing the issue.

The couples said, however, that the New York officials “offer no valid reason why this Court should allow New York—the Nation’s business center and the jurisdiction in which the question presented is by far most likely to arise—to flout a decision of this Court indefinitely, accruing millions if not billions of dollars of unconstitutionally collected tax revenue in the meantime.”

“If Wynne means what it says, the decisions below cannot be allowed to stand,” they argued.

The couples were represented by Kannon K. Shanmugam, chair of the Supreme Court and Appellate Practice Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP.

The case is Edelman v. N.Y. State Dep’t of Taxation and Fin., U.S., No. 18-1570, reply brief filed 9/11/19.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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