Tax Analysts Blog

The Problem With Outcome-Based Jurisprudence

Posted on Apr 30, 2014

State court systems are created by state governments to enforce state law. It’s a relatively simple concept. Like the federal court system, state judicial branches are separate entities from the executive and legislative branches. Judges are charged with the difficult task of interpreting and implementing state laws and state constitutions and resolving disputes. Under the doctrine of the separation of powers, however, the judiciary does not make the law and it does not enforce the law.

Yet in practice, and particularly for cases in which revenue is involved, judges may feel tempted to take on the concerns of the executive and legislative branches and engage in outcome-based jurisprudence. This happens when a court decides what the outcome of the case should be and then works backward to determine the reasoning that will reach the desired conclusion.

Take, for example, a recent case from the Oklahoma Supreme Court. The case, CDR Systems Corp. v. Oklahoma Tax Commission, addressed a statutory capital gains deduction for taxpayers headquartered in Oklahoma. The statute was challenged by a company headquartered in Florida because it did not provide the same deduction for taxpayers headquartered outside Oklahoma. The company alleged the statute was unconstitutional because it taxes companies differently based on whether they are headquartered in Oklahoma.

Although an Oklahoma appeals court determined the statute was facially discriminatory in violation of the commerce clause, the Oklahoma Supreme Court, in what can only be described as a case of outcome-based jurisprudence, concluded the commerce clause did not apply. What’s troubling, though, is that the disparate treatment of in-state versus out-of-state taxpayers is exactly the type of situation in which the commerce clause should apply.

The opinion from Oklahoma’s highest court is questionable at best. The court went so far as to suggest the statute should be held constitutional because the “Legislature could have imposed a more burdensome means of promoting significant business investment in Oklahoma’s economy.” In other words, the Legislature could have created a more unconstitutional statute, so let’s just leave the current statute alone.

The real question, though, is why? Why did the court go out of its way to dismiss existing commerce clause precedent and produce an opinion that is rife with illogical conclusions?

The answer is likely in the remedy that would have been provided if the taxpayer had prevailed. Oklahoma Tax Commission spokeswoman Paula Ross reportedly conceded that if the statute were struck down, the state would have been liable for up to $400 million in refunds. Practitioners in the state aren’t surprised. Some suspected the court would find a way to protect the treasury while also protecting in-state businesses.

The CRD Systems opinion may have accomplished the goal of protecting the treasury, but its success ends there. Outcome-based opinions should be avoided. It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional. In that respect, the court in Oklahoma failed.

Read Comments (4)

vivian darkbloomApr 30, 2014

"Isn't this _exactly_ what law school students are taught to do?"

That's an interesting question. When I went to law school, several decades
ago, it was likely not the case. However, there was taught at my law school a
course entitled "Policy Oriented Jurisprudence" advocated by Myres McDougal and
Harold Laswell (this is known as the "Yale School"). McDougal was fond of
asking "Do we protect it because it’s a property right, or is it a property
right because we protect it?" and Laswell coined the phrase "Politics is who
gets what, when and how".

Whether law is formally taught this way or not, it is quite possible that it is
in many cases it is.

david brunoriApr 30, 2014

Cara, Excellent post. Two companies are doing business in Oklahoma. The one
that sets up its headquarters there gets a tax break. The one that doesn't set
up its headquarters there, doesn't. I am not sure why anyone has to ask
anything beyond whether this scheme facially discriminates against interstate
commerce. It is designed to encourage companies to set up headquarters in
Oklahoma. Under Complete Auto, it seems unconstitutional. As to why, state
supreme courts have long given much deference to their legislatures when it
comes to taxes. That is why the Supreme Court is the best arbiter. Although
this case won't get there.

AMT buffMay 1, 2014

"This happens when a court decides what the outcome of the case should be and
then works backward to determine the reasoning that will reach the desired

Isn't this _exactly_ what law school students are taught to do?

Cara Griffith's pictureCara GriffithMay 1, 2014

AMT Buff-a valid point. Lawyers are taught to think that way. Somehow it seems
acceptable, though, for lawyers to determine the outcome they want and work
backward to develop their argument, while it seems fundamentally wrong for
judges to do the same.

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