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Mississippi Dividends Received Deduction Spared from Scrutiny (For Now)

More than a decade into the case, AT&T’s challenge to the constitutionality of Mississippi’s dividends received deduction is over. On September 6, the Mississippi Supreme Court invalidated

September 10, 2012

More than a decade into the case, AT&T’s challenge to the constitutionality of Mississippi’s dividends received deduction is over. On September 6, the Mississippi Supreme Court invalidated on procedural grounds the trial court’s 2006 decision finding that the dividends received deduction was unconstitutional. Mississippi’s dividends received deduction is limited to dividends paid from subsidiaries doing business in Mississippi, which AT&T challenged as facially discriminatory against out-of-state companies. AT&T filed its first protest in this case in 1999.

The state supreme court ruled that the trial court never had subject matter jurisdiction over the case (and thus its ruling was null and void), because AT&T paid the challenged tax to the State Tax Commission before filing suit, rather than posting a double-tax bond with the court at the time of filing. The state did not even argue this procedural point and conceded that jurisdiction was proper early on in the case. Nonetheless, the state supreme court took it upon itself to dispense with the case on procedural grounds and was able to avoid the substantive issue entirely.

AT&T’s loss effectively means that another taxpayer will have to litigate the issue of whether Mississippi’s dividends received deduction discriminates against out-of-state companies in violation of the Commerce Clause of the U.S. Constitution.

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Elizabeth S. Cha, Associate
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