California v. Texas

Background

California asks the Court for permission to file a state-versus-state lawsuit against Texas to decide whether Howard Hughes was domiciled in California or Texas when he died. Which State had Hughes’ domicile matters because only one State can claim the right to levy death taxes on the estate. California previously sought leave to file in 1977 and was denied; the estate then sought relief through a federal interpleader action. That federal route was rejected in a related case, Cory v. White, which held statutory interpleader could not resolve inconsistent state death-tax claims.

Reasoning

The central question was whether this dispute between two States is the kind of controversy the Court should decide directly. The Court concluded that each State’s authority to tax depends on domicile, an individual can have only one domicile, and California and Texas have inconsistent claims that could force competing tax demands. Relying on an analogy to an earlier case, Texas v. Florida, and on changed circumstances (rejected will claims and expiration of a settlement), the Court found the preconditions satisfied. The Court therefore granted California leave to file its bill of complaint and gave defendants 60 days to answer.

Real world impact

The Court’s order starts a direct state-to-state lawsuit that will determine which State can collect death taxes from the Hughes estate. California’s filings emphasize very high combined tax exposure (alleging a combined marginal rate above 100%), which, if true, could greatly reduce estate assets. This order permits the dispute to proceed here; it is a procedural decision allowing the case to be heard, not a final ruling on where Hughes was domiciled.

Dissents or concurrances

Justice Powell (joined by Justices Marshall, Rehnquist, and Stevens) dissented, arguing the controversy is unripe, the risk of actual double recovery is speculative, and the interpleader analogy should not justify an original state action.