The Supreme Court on Thursday rejected a challenge to the constitutionality of taxation on foreign income in a case backed by business and anti-regulatory interests who said the provision was similar to a “wealth tax.” The 7-2 decision by Justice Brett Kavanaugh upheld the mandatory repatriation tax, siding with the Biden administration to uphold the provision of the 2017 corporate tax reform law. The law imposes a one-time levy on undistributed profits from U.S. shares of foreign corporations majority-owned by U.S. residents, and it is expected to generate $340 billion.
The decision stems from a case known as Moore v. United States brought by Charles and Kathleen Moore, a Washington state couple who argued that the $15,000 increase in their tax bill, due to the tax, was unconstitutional because it taxed unrealized income.
“The question is whether that 2017 tax (known as the Mandatory Repatriation Tax or MRT) is constitutional under Article I, §§8 and 9 and the Sixteenth Amendment,” Kavanaugh wrote. “This Court’s longstanding precedents establish that the answer is yes.”
Kavanaugh emphasized the “narrow” holding in the case, writing that “nothing in this opinion should be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity.”
Joe Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation, told the Washington Examiner that the Supreme Court handed down “a narrow decision focused on the one-time international tax that was challenged.”
“But the Court makes clear it is not opening the door to a wealth tax, which would still face constitutional problems as a tax on property,” said Bishop-Henchman, whose group filed an amicus brief on behalf of the Moores.
Although the 2017 tax was enacted under former President Donald Trump, the current Biden administration sought to defend it in court. Government lawyers primarily argued that the Sixteenth Amendment permits Congress to tax income that foreign corporations actually received, even if it was attributed to U.S. shareholders.
Lease and Tax Implications
Understanding what is a lease and its implications can be crucial for businesses navigating complex tax landscapes. A lease, by definition, is a contractual arrangement where one party, the lessor, grants another party, the lessee, the right to use an asset for a specified period in exchange for periodic payments. The lease meaning extends beyond mere usage rights; it often involves intricate financial and legal considerations.
In light of recent judicial decisions, companies must be vigilant about how their leasing arrangements might intersect with tax obligations. The Supreme Court’s ruling underscores the importance of understanding both domestic and international tax laws, especially for businesses with significant foreign operations. As firms lease assets or engage in cross-border transactions, they must consider potential tax liabilities that could arise from such activities.
During oral arguments in the case, U.S. Solicitor General Elizabeth Prelogar contended that maintaining the corporate tax reform law would avert disruptions to the tax code and avoid what the government warned could be “several trillion dollars” in lost revenue. The decision on Thursday supported the government’s position that the mandatory repatriation tax is a legitimate means of preventing U.S. shareholders from avoiding taxes by stashing profits in foreign corporations.
