North Dakota Ex Rel. Flaherty v. Hanson

Background

A North Dakota law required people who paid the federal special tax for selling distilled or malt liquors to file an authenticated copy of their federal tax receipt, publish notice in newspapers for weeks, post an affidavit, and pay filing and publication fees. A retail dealer in malt liquor was charged for failing to register and publish his federal tax receipt. State courts upheld the law, and the case reached this Court on the claim that the state statute conflicted with federal law and the U.S. Constitution.

Reasoning

The central question was whether the state law unlawfully interfered with the United States’ power to tax. The Court held that the statute imposed a direct burden on federal taxation by adding onerous conditions on people who simply paid a federal tax, regardless of any act within the State. That outcome would allow a State to obstruct or control federal tax assessment and collection, which the Constitution and federal statutes do not permit. Because the state law added requirements inconsistent with the federal system, it was repugnant to the Constitution and could not stand.

Real world impact

The decision prevents States from imposing publication, filing, or other extra duties that effectively penalize people for paying federal taxes or that would interfere with federal tax collection. It protects taxpayers who have complied with federal tax laws from being subjected to additional state-imposed publicity and fees tied only to the act of paying a federal tax. The case was reversed and remanded to the state court for further proceedings.

Dissents or concurrances

Three Justices (the Chief Justice, Mr. Justice McKenna, and Mr. Justice Holmes) dissented from the Court’s judgment.