Supreme Court upholds US tax on foreign business income

The U.S. Supreme Court upheld a 2017 tax on American-owned businesses’ foreign profits, rejecting an appeal that could have saved companies hundreds of billions of dollars.

Voting 7-2, the justices said Congress has the constitutional power to tax people and companies on their share of undistributed corporate income.  

The case was being closely watched because of its potential implications for Democratic proposals to impose a wealth tax. The majority said it didn’t need to rule on that or other hypothetical taxes.

“Those are potential issues for another day, and we do not address or resolve any of those issues here,” Justice Brett Kavanaugh wrote for the court. He added that “Congress has long taxed shareholders of an entity on the entity’s undistributed income, and it did the same” with the 2017 tax.

Justices Clarence Thomas and Neil Gorsuch dissented. 

The disputed provision, known as the mandatory repatriation tax, was set up to offset other parts of a Republican-backed tax cut passed during Donald Trump’s presidency. The government has estimated that the tax would bring in $340 billion over 10 years, much of it from multinational companies like Apple Inc. and Pfizer Inc. 

The case marked a rare test of the Constitution’s 16th Amendment, ratified in 1913 to let Congress levy an income tax. That amendment authorizes Congress “to lay and collect taxes on incomes, from whatever source derived” without having to divide the bill among the states according to their population, as is required for other types of taxes.