United States Steel Corp. v. Multistate Tax Commission

1978-02-21

Headline: Court allows a regional state tax compact to operate without Congress’s formal approval, upholding a state-run tax commission’s cooperative audits while leaving each State free to adopt or reject its rules.

Holding: The Court upheld the Multistate Tax Compact, ruling it need not have congressional consent because it does not enhance States’ political power over the Federal Government and does not violate the Commerce or Fourteenth Amendments.

Real World Impact:

Allows regional tax commission to carry out cooperative audits for member States.
Leaves each State free to adopt, reject, or withdraw from commission rules.
Raises risk of coordinated multistate audits for large corporations under state law.

Topics: state taxation, interstate audits, interstate compacts, federalism

Summary

Background

A group of large multistate businesses sued to stop the Multistate Tax Compact and the Multistate Tax Commission, arguing the Compact never received Congress’s consent and therefore was invalid. The businesses also said the Compact improperly burdened interstate commerce and violated the Fourteenth Amendment. The Compact created a commission of state tax administrators to promote uniform tax rules, offer joint audits when States adopt a specific audit article, and publish advisory regulations that each State may accept or reject.

Reasoning

The Court applied long-standing precedent that the Compact Clause requires congressional consent only for agreements that increase States’ political power in a way that threatens federal supremacy. The majority concluded this Compact does not do that. The Commission acts as an auditing agent for member States, has no sovereign taxing power, and cannot force compliance without going to state courts. The Court also found the Commerce Clause and Fourteenth Amendment challenges unsupported on the record and rejected them as a facial matter.

Real world impact

As a result, the Multistate Tax Commission may continue to operate without formal congressional approval. Member States remain free to adopt, modify, or reject the Commission’s advisory regulations and can withdraw from the Compact. Multistate businesses therefore face coordinated audits and efforts at uniform state taxation so long as States choose to participate.

Dissents or concurrances

Justice White (joined by Justice Blackmun) dissented, warning that concerted state action of this scope can exert great political influence, may pressure nonmember States, and that Congress should review such a complex interstate scheme before it is allowed to become entrenched.