Justice Scalia’s Tax Law Jurisprudence—Just as Acerbic and Prophetic

Ajay Gupta

2/16/2016

Supreme Court Justice Antonin Scalia, who died February 13 and was universally acknowledged as both an intellectual pillar of the Court’s modern-day conservative renaissance and a staunch defender of the constitutional rights of criminal defendants, also leaves behind a legacy of tax law jurisprudence characterized by fealty to his guiding judicial philosophy of restricting himself to the text and searching for its original meaning. In so doing, he often found himself striking a discordant and derisive note.

In considering constitutional challenges to state taxation schemes, Scalia rejected the notion that in the absence of congressional action, the commerce clause, by its own force, imposes limitations on state taxing powers, arguing that “the historical record provides no grounds for reading the Commerce Clause to be anything other than what it says—an authorization for Congress to regulate commerce.” (Tyler Pipe) Accordingly, he steadfastly maintained his “continuing adherence to the view that the so-called ‘negative’ Commerce Clause is an unjustified judicial invention.”(Tracy) Nevertheless, he did, “on stare decisis grounds, enforce a self-executing ‘negative’ Commerce Clause in two situations: (1) against a state law that facially discriminates against interstate commerce, and (2) against a state law that is indistinguishable from a type of law previously held unconstitutional by this Court.” (West Lynn Creamery) Thus, though he could be reliably counted on to vote against most commerce clause challenges to state taxation schemes, Scalia’s approach differed from that of Justice Clarence Thomas, who “would entirely discard the Court’s negative Commerce Clause jurisprudence.” (United Haulers)

In constitutional challenges in the federal tax arena, Scalia’s concurrence in Freytag and dissent in Hatter are noteworthy. In his sharply worded Freytag concurrence, Scalia (joined by Justices Sandra Day O’Connor, Anthony Kennedy, and David Souter) derided the majority’s conclusion that the Tax Court “exercises a portion of the judicial power of the United States” and is a “Court of Law” within the meaning of the appointments clause of Article II, section 2 of the Constitution. Placing the Tax Court firmly within the executive branch, Scalia would have designated the Tax Court’s chief judge as one of the “Heads of Department” referred to in the appointments clause. Nearly a quarter of a century later, in 2014, the Court of Appeals for the D.C. Circuit in Kuretski seems to have relied more on Scalia’s concurrence in Freytag than on the majority opinion in that case to conclude that the Tax Court exercises its authority as part of the executive branch and not the judicial branch.

In Hatter, Scalia dissented from the majority’s holding that Congress’s extension of the Medicare tax to sitting federal judges did not violate the compensation clause of Article III, section 1 of the Constitution. Disagreeing with the majority’s conclusion that the compensation clause does not forbid the imposition of nondiscriminatory taxes, such as the Medicare tax, on federal judges who held office before Congress extended those taxes to federal employees, Scalia argued that “the Constitution makes no exceptions for nondiscriminatory reductions in judicial compensation” and that “a reduction in compensation is a reduction in compensation, even if all federal employees are subjected to the same cut.” Distinguishing “between Government action affecting compensation and Government action affecting the value of compensation,” Scalia argued “that a tax-free status conditioned on federal employment is compensation, and its elimination a reduction.”

In cases involving the interpretation of federal tax statutes, Scalia brought to bear his general disdain of legislative history. For instance, in Begier, Scalia agreed with the Court’s judgment that the payments of income, FICA, and excise taxes collected from a debtor airline’s customers were not transfers of property of the debtor, but were instead transfers of property held in trust for the IRS. But he faulted the Court’s reliance on a floor statement of the House floor manager of the Bankruptcy Code that “the courts should permit the use of reasonable assumptions” regarding the tracing of tax trust funds. Scalia wrote disparagingly, “If the Court had applied to the text of the statute the standard tools of legal reasoning, instead of scouring the legislative history for some scrap that is on point (and therefore ipso facto relevant, no matter how unlikely a source of congressional reliance or attention), it would have reached the same result it does today. ”

Although scornful of legislative history, Scalia generally advocated greater deference to agency interpretation of statutory text. His Mead dissent would have extended Chevron deference to Treasury regulations whether or not they are preceded by notice and comment. At the same time, Scalia was zealous in protecting the courts’ prerogative in conclusively establishing the meaning of ambiguous statutory text not previously interpreted by the administering agency. He dissented from the Court’s holding in Brand X that an administrative agency may overturn judicial construction of an ambiguous statute by rulemaking. Less than a decade later, in 2012, in Home Concrete, a case in which Treasury regulations sought to undo a string of judicial setbacks for the IRS, the Court struggled with some of the confounding implications of Brand X that Scalia had forewarned about in his concurrence in that case. And in concurring in Home Concrete, he again called for abandoning Brand X.

As in other areas of the law, Scalia’s many concurrences and dissents in tax cases displayed a savage wit, while manifesting an inability to carry his colleagues with him. But just as in the other areas of law, his forebodings in his tax law concurrences and dissents have often proved prophetic.