Yesterday, the New Jersey Supreme Court heard oral arguments in the Whirlpool case. Whirlpool Properties, Inc. v. Div. of Taxation, Docket A-25-10 (N.J. Supreme Court argued May 4, 2011). Whirlpool argued that the New Jersey “Throwout Rule” is facially unconstitutional because it is designed to tax extraterritorial income. The New Jersey Throwout Rule required taxpayers to exclude (or “throwout”) receipts from the denominator of their sales factor if the sales were assigned to a state where the taxpayer was not “subject to tax.” Interestingly, New Jersey asserted that the Throwout Rule is not a tax and does not increase New Jersey tax because the rule impacts only the denominator and not the numerator. In its questioning, the court appeared to scrutinize the Throwout Rule from both an internal and external consistency perspective. While the argument related to the facial constitutional challenge, the court posed several questions relating to an as-applied constitutional challenge, which many taxpayers are in line to bring if the court holds that the Throwout Rule is not facially unconstitutional.
Sutherland filed an amicus brief on behalf of the Council on State Taxation (COST) supporting Whirlpool’s argument that the Throwout Rule is facially unconstitutional.
You can find prior Sutherland SALT coverage of the Whirlpool case here.