Dunn v. Idaho State Tax Comm'n

• Citation: 403 P.3d 309,162 Idaho 673
• Decision Date: 25 September 2017
• Docket Number: Docket No. 44378
• Court: United States State Supreme Court of Idaho
• Parties: Linda DUNN, individually, and as surviving spouse of Barry Dunn, deceased, Plaintiff-Appellant, v. IDAHO STATE TAX COMMISSION, Defendant-Respondent.

162 Idaho 673
403 P.3d 309

Linda DUNN, individually, and as surviving spouse of Barry Dunn, deceased, Plaintiff-Appellant,
v.
IDAHO STATE TAX COMMISSION, Defendant-Respondent.

Docket No. 44378

Supreme Court of Idaho, Boise, August 2017 Term.

Filed: September 25, 2017

Richard Kochansky, Coeur d'Alene, attorney for appellant.

Hon. Lawrence G. Wasden, Idaho Attorney General, attorney for respondent. David B. Young argued.

JONES, Justice

162 Idaho 674

I. NATURE OF THE CASE

Linda Dunn ("Linda") appeals from a district court's judgment affirming the Idaho State Tax Commission's (the "Commission") deficiency determination. The Commission issued a deficiency against Linda after determining that her one-half community interest in her husband's, Barry Dunn ("Husband"), out-of-state earnings should have been included as Idaho taxable income for 2000–01, 2003–05, and 2007–10 (the "Taxable Years").

403 P.3d 311

162 Idaho 675

II. FACTUAL AND PROCEDURAL BACKGROUND

The crux of this appeal concerns the proper tax treatment of Linda's one-half community interest in Husband's out-of-state earnings. The facts are uncontested. Linda was married to Husband during the Taxable Years. During the Taxable Years, Husband lived primarily in Texas and was employed by a Texas offshore drilling company. All of the earnings at issue were earned by Husband personally as a wage earner in Texas, Alaska, or Washington and were directly deposited into his bank account in Tomball, Texas. Husband never worked or was domiciled in Idaho during the Taxable Years. Throughout the Taxable Years, Linda temporarily lived with Husband at his work location, but always returned to Idaho to operate a horse farm. She was a resident of Idaho for all of the Taxable Years. Linda and Husband's tax filing status was "married filing jointly."

On April 13, 2012, the Commission issued a Notice of Deficiency Determination. The Commission's deficiency was only addressed to income attributed to Linda. Linda appealed the decision to the Idaho Board of Tax Appeals, and the Board affirmed the Commission's decision. On May 11, 2015, Linda petitioned a district court for review of the Commission's decision.

On June 8, 2016, the district court issued a memorandum decision and order affirming the Commission's decision wherein it held that: (1) Linda owned a one-half undivided interest in the Texas earnings of Husband, and, because she was domiciled in Idaho at the time she acquired the interest in Husband's wages, her interest was subject to the tax laws of Idaho; (2) Linda owned a vested interest in the community property wages earned by Husband in Washington, which were subject to taxation under the laws of Idaho as the domicile of Linda; and (3) Idaho's personal income tax scheme did not violate the dormant Commerce Clause or the Privileges and Immunities Clause of the United States Constitution because Linda failed to show a substantial effect on an identifiable interstate economic activity or market. The district court denied the Commission's request for costs and attorney fees because, although Linda's argument was ultimately failing, it was not devoid of merit. A corresponding judgment was issued on August 3, 2016.

Linda appeals.

III. ISSUES ON APPEAL

1. Did the district court err by holding that there were no constitutional violations?

2. Did the district court err by holding that Linda's one-half community interest in Husband's wages was subject to the tax laws of Idaho?

IV. STANDARD OF REVIEW

A taxpayer may appeal a determination by the Commission by filing a complaint against the Commission in district court. I.C. § 63–3049. The case is to proceed as a de novo bench trial. I.C. § 63–3049 ; cf. I.C. § 63–3812(c). A deficiency determination issued by the Commission is presumed to be correct, and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue , 106 Idaho 810, 814, 683 P.2d 846, 850 (1984).

Parker v. Idaho State Tax Comm'n , 148 Idaho 842, 845, 230 P.3d 734, 737 (2010) (footnote omitted).

"Because constitutional questions are purely questions of law, they are ... reviewed de novo ." V-1 Oil Co. v. Idaho State Tax Com'n , 134 Idaho 716, 718, 9 P.3d 519, 521 (2000) (citing Idaho State Ins. Fund v. Van Tine , 132 Idaho 902, 905–906, 980 P.2d 566, 569–570 (1999) ).

V. ANALYSIS

Throughout her briefing, Linda focuses solely on Husband's Texas earnings and Texas law. She does not proffer an argument related to Husband's Washington earnings or Washington law. "We will not consider an issue not ‘supported by argument and authority in the opening brief.’ " Bach v. Bagley , 148 Idaho 784, 790, 229 P.3d 1146, 1152 (2010) (quoting Jorgensen v. Coppedge , 145 Idaho 524, 528, 181 P.3d 450, 454 (2008) ). Accordingly, we only consider Linda's appeal

403 P.3d 312

162 Idaho 676

as it relates to her one-half community interest in Husband's Texas earnings.

A. The district court correctly held that there were no constitutional violations.

First, Linda argues that the United States Supreme Court's decision in Comptroller of Treasury of Maryland v. Wynne , ––– U.S. ––––, 135 S.Ct. 1787, 191 L.Ed.2d 813 (2015) "abrogated Parker [ v. Idaho State Tax Comm'n , 148 Idaho 842, 847, 230 P.3d 734, 739 (2010) ] and applied the [d]ormant Commerce Clause to state cross-border income tax cases." Linda claims that the tax at issue here "flunks the internal consistency test" from Wynne because "Idaho is taxing [Husband's] wages earned in Texas where there is no state income tax." Further, Linda claims that Idaho's income tax "is inherently discriminatory and acts as a tariff" because her one-half interest in Husband's Texas earnings would be tax-exempt if she lived in Texas.

Second, Linda argues that the Privileges and Immunities Clause of the United States Constitution applies. She cites Lunding v. New York Tax Appeals Tribunal , 522 U.S. 287, 118 S.Ct. 766, 139 L.Ed.2d 717 (1998), and claims that it stands for the proposition that unequal income tax treatment of a nonresident violates the Privileges and Immunities Clause.

The Commission's position—that the district court was correct in holding that there were no constitutional violations—can be distilled to two main points. First, the Commission asserts that the Commerce Clause is not implicated by the facts of this case. The Commission contends that, to implicate the Commerce Clause, Linda must show that the application of Idaho's tax scheme substantially affected interstate commerce. The Commission asserts that Linda failed to do so. Further, the Commission claims that Wynne does not render Idaho's personal income tax scheme unconstitutional as Linda claims. The Commission claims that the internal consistency test from Wynne does not require each state to adopt identical tax provisions; rather, it asks, if every state used the same tax scheme, would interstate commerce be at a disadvantage as compared to intrastate commerce? Wynne , 135 S.Ct. at 1802. If the answer is no, then the tax scheme under scrutiny passes the test. The Commission concludes that Linda has failed to demonstrate that she was entitled to a credit for taxes paid to another state.

Second, the Commission argues that there is no violation of the Privileges and Immunities Clause. The Commission states that, in tax cases, the Privileges and Immunities Clause stands for the proposition that a state must offer "substantial equality of treatment" as between its citizens and a nonresident taxpayer. Austin v. New Hampshire , 420 U.S. 656, 95 S.Ct. 1191, 43 L.Ed.2d 530 (1975). Here, the Commission argues, there can be no violation of the Privileges and Immunities Clause because Linda has not shown disparate treatment between a nonresident and a resident. The Commission distinguishes Lunding , arguing that in that case, the United States Supreme Court invalidated a state tax that expressly discriminated against nonresidents. Conversely, here, the Commission argues, there was no showing of discriminatory tax treatment of residents relative to nonresidents. Lastly, the Commission explains that Husband is not the target of the tax; therefore, there is no occasion of Husband having to pay tax in Idaho greater than what he paid in another state.

"To show that the Commerce Clause is implicated by a tax statute, [a taxpayer] must demonstrate that the state's taxation of [her] entire income has a substantial effect on an identifiable interstate economic activity or market." 71 Am.Jur.2d State and Local Taxation § 391 (2009) (citing Stelzner v. Comm'r of Revenue , 621 N.W.2d 736, 740 (Minn.2001) ).

"The dormant Commerce Clause protects markets and participants in markets, not taxpayers as such." Gen. Motors Corp. v. Tracy , 519 U.S. 278, 300 [117 S.Ct. 811, 825, 136 L.Ed.2d 761, 781] (1997). Therefore, the dormant Commerce Clause will not apply unless there is actual or prospective competition between entities in an identifiable market and

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