The Walt Disney Company v. New York Tax Appeals Tribunal, et al.

New York taxed intellectual-property royalties that companies received from their foreign affiliates, but not royalties received from New York affiliates. The New York Court of Appeals held that under the plain terms of the statute, a company’s obligation to pay the tax depended on a geographic distinction: If a royalty-paying affiliate subjected itself to New York’s jurisdiction, then the royalty-receiving taxpayer could deduct the income; otherwise, the taxman cometh. That textbook discrimination resulted in textbook injury here. Disney licenses its valuable intellectual property to a host of affiliated entities worldwide, in exchange for royalties. Had those affiliates been New York taxpayers, Disney’s tax bill would have been millions of dollars lower. The Court of Appeals did not deny that the statute textually discriminated against out-of-state taxpayers. But because there are some circumstances in which the law would have no discriminatory effect on a different taxpayer, the court rejected Disney’s as-applied challenge to textually obvious and financially consequential discrimination. That tortured result distorts this Court’s clear teachings, conflates the standard for facial discrimination with the standard for facial invalidation, and exacerbates a deep conflict on basic principles of dormant Commerce Clause doctrine. The question presented is: Whether a state tax law that on its face treats royalty income derived from corporate affiliates less favorably if the affiliates do not subject themselves to the state’s jurisdiction facially discriminates against interstate and foreign commerce.