OF JUDGMENT: 08/31/2017
COUNTY CHANCERY COURT HON. J. DEWAYNE THOMAS, JUDGE
COURT ATTORNEYS: ALEXIS L. FARMER JON FRANCIS CARMER, JR.
JOHN FLOYD FLETCHER
ATTORNEYS FOR APPELLANTS: JOHN FLOYD FLETCHER ADAM STONE
KAYTIE MICHELLE PICKETT
ATTORNEYS FOR APPELLEE: JON FRANCIS CARMER, JR. BRIDGETTE
WALLER, C.J., MAXWELL AND ISHEE, JJ.
Michael and Vickie Kansler moved to Mississippi from New York
for Michael's job and, over the following years,
exercised stock options stemming from that employment. The
Kanslers took the position that the stock options' income
was taxable only in Mississippi, which reduced their tax
burden significantly. New York saw things differently and
found a substantial portion of the income taxable by it. This
liability to another state would have entitled the Kanslers
to a credit on their Mississippi taxes worth more than $250,
000-but by the time the New York audit was finished, our
statute of limitations barred the Kanslers from amending
their Mississippi returns. They now argue our statute of
limitations unconstitutionally discriminates against
Mississippi's treatment of the statute of limitations for
amending tax returns is unremarkable and appears to be shared
with many other states. The Kanslers' dormant Commerce
Clause argument, on the other hand, is novel. And it depends
on an unprecedented and erroneous attempt to apply the
"internal consistency test," intended to evaluate
the apportionment of taxes, to the collateral effects of a
statute of limitations. We hold that the challenge is instead
governed by the discrimination/Pike balancing test
employed by the United States Supreme Court in Bendix
Autolite Corp. v. Midwesco Enterprises Inc., 486 U.S.
888, 108 S.Ct. 2218, 100 L.Ed.2d 896 (1988), the only United
States Supreme Court case to scrutinize a statute of
limitations under the dormant Commerce Clause. While
Bendix and its ilk offer little guidance-Justice
Scalia famously compared the Pike balancing test to
trying to decide "whether a particular line is longer
than a particular rock is heavy"-the Kanslers' challenge
fails because our statute of limitations is facially
nondiscriminatory and has only an incidental effect on
interstate commerce, one that is justified by the practical
difficulties of tax administration and the State's
interest in finality. The Kanslers bear the burden of proving
otherwise, so any uncertainty must be resolved against their
challenge. We affirm the Mississippi Department of
Revenue's decision to refuse the refund request.
AND PROCEDURAL HISTORY
This case comes up on summary judgment. The facts are not
disputed, and the following facts are drawn from the facts
stipulated in the chancery court.
Michael Kansler worked for Entergy in New York, and he
received stock options as part of his compensation. The
Kanslers lived in New York until they were relocated to
Mississippi in May 2007. During 2008 and 2009, Michael was
still employed by Entergy in Mississippi. The Kanslers timely
filed their Mississippi tax returns for the 2008 and 2009 tax
years and paid taxes on their worldwide income, as required
by Mississippi law. Some of that income derived from
Michael's stock options. The stock options had been
granted over several years before the Kanslers moved to
Mississippi. The options vested over multiple years,
including after the Kanslers moved to Mississippi.
In 2012, New York began an audit of the Kanslers' taxes
related to the exercise of stock options in 2008, 2009, and
2010. On December 29, 2014, New York completed the audit and
assessed the Kanslers additional tax and interest. The
Kanslers paid the assessment on December 31, 2014. In January
2015, the Kanslers filed amended Mississippi tax returns and
requested a refund of $257, 140 based on the credit allowed
for income taxes paid to other states. The Mississippi
Department of Revenue denied the refund request because it
was outside of the three-year limitations
period. The Kanslers appealed to the
Department's Board of Review and then to the Mississippi
Board of Tax Appeals, both of which affirmed the
Department's decision. The Kanslers challenged the
constitutionality of the limitations period in both appeals,
but each body affirmed the Department's decision based on
the text of the statute without considering its
constitutionality. The Kanslers then appealed to the Chancery
Court of the First Judicial District of Hinds County, arguing
that the limitations period under Section 27-7-313 violates
the Commerce, Due Process, and Equal Protection Clauses of
the United States Constitution, and that the Department's
actions were arbitrary, capricious, and beyond its statutory
authority. Both parties filed motions for summary judgment.
The chancellor granted the Department's motion and denied
the Kanslers' motion, finding that the refund limitations
period does not violate the United States Constitution. The
Kanslers appeal from that judgment.
This Court reviews a chancellor's grant or denial of
summary judgment de novo. Miss. Dep't of Revenue v.
AT & T Corp., 202 So.3d 1207, 1213 (Miss. 2016).
Summary judgment is only appropriate "if the pleadings,
depositions, answers to interrogatories and admissions on
file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of
law." M.R.C.P. 56(c).
We also apply a de novo standard of review when deciding the
constitutionality of a state statute. Commonwealth
Brands, Inc. v. Morgan, 110 So.3d 752, 758 (Miss. 2013)
(citing Johnson v. Sysco Food Servs., 86 So.3d 242,
243 (Miss. 2012)). Statutes "come before us clothed with
a heavy presumption of constitutional validity." Ex
rel. T.L.C., 566 So.2d 691, 696 (Miss. 1990),
overruled on other grounds by In re J.T., 188 So.3d
1192 (Miss. 2016)). "The party challenging the
constitutionality of a statute is burdened with carrying his
case beyond all reasonable doubt before this Court has
authority to hold the statute, in whole or in part, of no
force or effect." Id. (citations omitted).
Also potentially relevant is Mississippi Code Section
27-77-7(5) (Rev. 2017), which provides in relevant part,
At trial of any action brought under this section, the
chancery court shall give no deference to the decision of the
Board of Tax Appeals, the Board of Review or the Department
of Revenue, but shall give deference to the department's
interpretation and application of the statutes as reflected
in duly enacted regulations and other officially adopted
publications. The chancery court shall try the case de novo
and conduct a full evidentiary judicial hearing on all
factual and legal issues raised by the taxpayer which address
the substantive or procedural propriety of the actions of the
Department of Revenue being appealed.
this provision has not been not cited by the Department of
Revenue in its brief, nor has the Department cited any
"duly enacted regulations" or "other
officially adopted publications" relevant to our
Dormant Commerce Clause
The Kanslers argue Mississippi's three-year statute of
limitations for amending a taxpayer's return
impermissibly burdens interstate commerce because it does not
give taxpayers enough time to amend a Mississippi tax return
after an audit by another state, which can take far longer
than three years. They contend that this violates the
negative or dormant aspect of the Commerce Clause of the
United States Constitution because in-state taxpayers do not
suffer the same difficulty.
The Dormant Commerce Clause
The Constitution gives Congress the authority to regulate
interstate commerce. U.S. Const. art. I, § 8, cl. 3. But
"[a]lthough the Clause is framed as a positive grant of
power to Congress, [the United States Supreme Court has]
consistently held [it] to contain a further, negative
command, known as the dormant Commerce Clause."
Maryland v. Wynne, 135 S.Ct. 1787, 1794, 191 L.Ed.2d
813 (2015). The dormant aspect of the Commerce Clause
"prohibits economic protectionism-that is, regulatory
measures designed to benefit in-state economic interests by
burdening out-of-state competitors." Fulton Corp. v.
Faulkner, 516 U.S. 325, 330, 116 S.Ct. 848, 133 L.Ed.2d
796 (1996). Absent congressional approval, a state may not
discriminate against or impose excessive burdens upon
interstate commerce. Wynne, 135 S.Ct. at 1794.
"In the absence of conflicting federal legislation the
States retain authority under their general police powers to
regulate matters of 'legitimate local concern,' even
though interstate commerce may be affected." Lewis
v. BT Inv. Managers, Inc., 447 U.S. 27, 36, 100 S.Ct.
2009, 64 L.Ed.2d 702 (1980).
State laws that discriminate against interstate commerce
"face a virtually per se rule of invalidity."
Granholm v. Heald, 544 U.S. 460, 476, 125 S.Ct.
1885, 161 L.Ed.2d 796 (2005). But when a state law
"regulates even-handedly to effectuate a legitimate
local public interest, and its effects on interstate commerce
are only incidental, it will be upheld unless the burden
imposed on such commerce is clearly excessive in relation to
the putative local benefits"; this is the Pike
balancing test. Pike v. Bruce Church, Inc., 397 U.S.
137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). "[T]hese
two principles guide the courts in adjudicating cases
challenging state laws under the Commerce Clause," but
they are, as the Supreme Court recently put it, "subject
to exceptions and variations." South Dakota v.
Wayfair, Inc., 138 S.Ct. 2080, 2091, 201 L.Ed.2d 403
(2018). Others have been less charitable, saying the dormant
Commere Clause jurisprudence remains a "quagmire"
that offers "little in the way of precise guides to the
States in the exercise of their indispensable power of
taxation." DIRECTV v. Utah State Tax
Comm'n, 364 P.3d 1036, 1049 (Utah 2015) (quoting
Nw. States Portland Cement Co. v. Minnesota, 358
U.S. 450, 458, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959)).
The Mississippi Statutes at Issue
Mississippi taxes the worldwide income of its residents.
See Miss. Code Ann. § 27-7-5 (Rev. 2017). To
avoid double taxation, Mississippi offers a credit for income
taxes paid to other states. See Miss. Code Ann.
§ 27-7-77 (Rev. 2017). This credit, however, is limited
to how much Mississippi would have taxed the income. Miss.
Code Ann. § 27-7-77(2)(c) (Rev. 2017). Since New York
has a higher income tax rate, the Mississippi credit would
have been less than the tax assessed by New York. Or, put