Taxpayer challenges to retroactive state tax legislation

Inside Deloitte

This edition of Inside Deloitte summarizes various state court decisions over the last 20 years in which taxpayers have challenged the retroactive application of tax legislation on due process grounds and highlight the taxpayer challenges posed by those decisions.

Retroactive state tax legislation

If taxpayers were asked to name the most significant issue in state and local taxation, it may well be the lack of fairness created by the increasing trend of retroactive state tax legislation enacted by legislatures to neutralize the revenue impact of taxpayer-favorable court decisions. Nowhere has this trend been more evident than in the authors’ home state of Michigan, where the Legislature has consistently enacted retroactive tax legislation over the last 10 years after taxpayer-favorable litigation.1

This article hopes to demonstrate that for taxpayers seeking to challenge unfair retroactive tax legislation under the due process clause (the 14th Amendment of the US Constitution requires due process of law before a person can be deprived of life, liberty, or property), the current body of state tax case law has trended in an unfavorable direction.

This article will discuss the 1994 US Supreme Court decision in United States. v. Carlton,2 four successful state court taxpayer challenges to retroactive state legislation, and nine unsuccessful state court taxpayer challenges.3

It is not the goal of this article to delve too deeply into the legal analysis of each decision.4 Instead, it is to highlight the facts associated with each case to identify consistent patterns and lay out facts for taxpayers contemplating a challenge to consider.

If you have questions regarding this edition of Inside Deloitte, please contact:


Tom Cornett, senior manager, Deloitte Tax LLP


Samantha Hesley, staff, Deloitte Tax LLP


The authors thank Valerie Dickerson, Moira Pollard, Tracey Fielman, Shirley Wei, Mary Jo Brady, Brigid Wright, and Snowden Rives for their contributions to and review of this article.

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