Vermont National Telephone Company v. Vermont Department of Taxes

The Due Process Clause permits states to tax nonresidents on income from the sale of an intangible asset if that asset has a “situs,” or is “localized,” in the state. This Court has held that an intangible asset has a “situs” if it grants a right that is “identified with a particular place because the exercise of the right is fixed exclusively or dominantly at that place.” People of the State of New York ex rel. Whitney v. Graves, 299 U.S. 366, 372 (1937). Vermont’s corporate taxation scheme incorporates this federal constitutional situs principle. Under that scheme, if an intangible asset has a situs in another state, Vermont may not tax nonbusiness income earned from that asset. See Vt. Tax Reg. § 1.5833-1(e). This case concerns a nonbusiness gain earned on the sale of two licenses issued by the Federal Communications Commission (FCC). Even though the licenses granted rights to broadcast exclusively in New York, the Vermont Supreme Court held that they were not “localized” in New York and thus had no “situs.” It did so by adopting a novel rule that Whitney’s situs test is satisfied only if the intangible asset at issue was “created or protected” by the law of the state of the proposed situs. Solely because the FCC licenses were created by federal law—not state law—and the FCC governed their use and sale, the Vermont Supreme Court held that Vermont could properly tax the gain. The question presented is: Whether the Vermont Supreme Court erred in holding that a federal license, that can be used only in one state, lacks a situs in that state under Whitney’s interpretation of the federal due process principles governing state taxation.