Taxpayer Appeals Loss in Rare Constitutional Challenge to Composite Return Statute
September 15, 2020 – InsightDinsmore corporate and taxation partner Kelvin Lawrence wrote the article, "INSIGHT: Taxpayer Appeals Loss in Rare Constitutional Challenge to Composite Return Statute," for Bloomberg Tax, published Sept. 15, 2020.
"An out-of-state taxpayer is challenging an Alabama statute that requires pass-through entities to pay a 5% income tax on the distributive shares of Alabama-source income flowing through to their nonresident owners. Kelvin Lawrence of Dinsmore & Shohl LLP and Bruce Ely of Bradley Arant Boult Cummings LLP say the case is one to watch, because it is one of very few to focus on the Commerce Clause discrimination claims against composite return status for pass-through entities and their nonresident owners.
"Cases challenging the constitutionality of state pass-through entity (PTE) nonresident owner withholding or composite return statutes are extremely rare. However, a recent Alabama Circuit Court decision, Black Eagle Minerals, LLC v. Alabama Department of Revenue, Case No. CV-2018-900328.00 (Cir. Ct. Montgomery County, Ala., July 27, 2020), highlights why such challenges may be more common when PTE composite returns are mandatory."
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