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, at least when it comes to so-called pass-through businesses.
"Those are potential issues for another day, and we do not address or resolve any of those issues here," Justice Brett Kavanaugh wrote for five justices in the majority. "Congress has long taxed shareholders of an entity on the entity's undistributed income, and it did the same" with the 2017 tax.
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 and Pfizer.
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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.
Two Washington state residents, Charles and Kathleen Moore, contended the 2017 provision improperly taxes them on corporate income that was never distributed to them. The Moores were fighting a $14,729 tax bill stemming from a minority stake in an Indian company.
Justices Clarence Thomas and Neil Gorsuch dissented, saying that the 16th Amendment doesn't authorize taxation unless income is realized. "Realization is what distinguishes income from property," Thomas wrote for the pair.
Two other conservative justices, Amy Coney Barrett and Samuel Alito, were in the majority but didn't join Kavanaugh's reasoning.
The case is Moore v. United States, 22-800.
