This week, the U.S. Government filed an amicus curiae (“friend of the court”) brief in Zilka v. City of Philadelphia, urging the Supreme Court not to hear the case.
As we explained in our brief in the case, the case deals with Pennsylvania seeming to allow individuals to claim a credit for taxes paid to other states but, in practice, not allowing a full credit when some of those taxes are designated as “local” income taxes. In this case, Diane Zilka lived in Philadelphia, Pennsylvania, and worked in Wilmington, Delaware. All of these jurisdictions have an income tax: Pennsylvania at 3.07%, Delaware at 5%, Philadelphia at 3.922%, and Wilmington at 1.25%. Diane paid taxes to Wilmington and Delaware and sought a credit for her Pennsylvania taxes. Pennsylvania refused to aggregate the state and city taxes and only allowed her to claim a credit for state tax to state tax and city tax to city tax. This denied Diana the full amount of tax credit to which she should be entitled.
This logic misses the bigger picture that city and “local” taxes are, in fact, state taxes for Constitutional purposes. Indeed, as we pointed out in our amicus curiae brief, constitutional restrictions on state taxes apply to local taxes, and a state cannot escape this fact by recategorizing how it names its taxes. What is alarming about Pennsylvania’s line of reasoning is that it can create loopholes for states to escape their constitutional duties by simply renaming a state tax a city tax.
In its amicus brief, the Government acknowledges Pennsylvania’s distinction between state and local taxes may be constitutionally problematic, but concludes that “aggregation would not have made any difference here.” It explains if every government imposed Pennsylvania’s tax scheme at Pennsylvania’s rates, there would be no double taxation. This rather bizarre mathematics misses the actual cross-border discrimination happening in this case.
Since the Solicitor General has now filed its brief, the U.S. Supreme Court will decide whether to grant Zilka’s petition for writ of certiorari. We will continue to monitor this case and keep you updated with any developments.