Monday, March 4, 2019

UPDATE: Arizona Going To Supreme Court To Sue California For Stealing Tax Revenues

UPDATE, 3/11, 11:30am: Although California has not yet responded - to Arizona's Politics' questions or to the AZ Attorney General's suit in the Supreme Court - we have heard back from AG Brnovich's office. Here are some highligts: (1) California was given a courtesy heads-up before last week's filing; (2) The AGs office did not discuss this or coordinate this suit with Governor Ducey's office. Not that that was necessary, even though the Governor has also been known for verbally going after Arizona's neighbor to the west... and Ducey's gubernatorial counterparts; and (3) the AGs office has discussed the issue with other states and expects to get some support for its position that California's unconstitutionally taxing across state lines.

(Initial headline: "BREAKING: Arizona Asks U.S. Supreme Court For Permission To Sue State Of California For Stealing Some Of Its Tax Revenues")

The U.S. Supreme Court today docketed a request from Arizona Attorney General Mark Brnovich to permit the state to sue neighboring California for stolen tax revenues. The proposed complaint alleges that California unconstitutionally taxes Arizona LLCs for doing business in California - even if that LLC is only an investor in another company that does business in the Golden State.

The U.S. Constitution (Article III, Section 2) makes the Supreme Court the initial - and, only - court when one state is suing another, and Arizona filed its request for permission to file the Complaint on Thursday. (It was docketed today.)

Arizona cites examples of California taxing Arizona LLCs, and even trying to levy against Arizona banks to collect the taxes. Arizona estimates that California's "extraordinarily aggressive" policies of costing Arizona nearly $500,000/year in lost tax revenues (because those businesses pay California and deduct it from their Arizona taxes). Arizona would also seek refunds to the more 13,000 Arizona LLCs that pay more than $10M/year to California. (And yes, Arizona believes other states - and, their LLCs - have been similarly effected.)

Here is the filing, complete with specific examples (and, exhibits) of California going after passive investor Arizona LLCs:

Tempe attorney Paul Weich contributed this article.

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