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Update: Supreme Court Addresses Chevron

Tax Development Jan 30, 2024

Update: Supreme Court Addresses Chevron

As previously reported, the United States Supreme Court was slated to hear oral arguments this month in two cases1 requesting elimination or restriction of the deference doctrine originated 40 years ago in the Chevron2 case. This week, in almost four hours of oral arguments, the issue of whether the courts should be bound by deference as determined by the test provided in Chevron was discussed. 

In Chevron, the Supreme Court ruled that courts should defer to a federal agency’s interpretation of an ambiguous statute as long as that interpretation is reasonable. Deference as determined in Chevron provided a relatively uncomplicated two-part test. First, the wording and the context of the statute in question are reviewed to determine if Congress’s intent is clear. If it is, the agency is required to follow the letter of the law. If the statutory language is ambiguous—if it has two or more reasonable interpretations—the reviewing court must defer to the agency’s choice for implementing the law. The rationale for deference was that expert agencies are better suited than judges to make policy decisions.

The attorneys for the fishermen in the two cases requested an elimination of the deference doctrine to ensure that the courts are the ones doing the interpreting, not the federal agencies. The attorney for the administration argued that under the doctrine of stare decisis—that courts should defer to their prior decisions—a “truly extraordinary justification” would be needed to overrule the Chevron doctrine. 

The majority of the conservative judges seems willing to consider eliminating the deference doctrine to restore the balance of power, agreeing that with Chevron, “The government always wins,” according to Justice Neil Gorsuch.  

The liberal judges, on the other hand, are concerned that overruling Chevron would lead to judges becoming “uber legislators” and prefer to leave policy decisions in the hands of the agencies. 

Opinions are varied on the possible outcome of this case. Although the current cases involve the fishing industry, the impact of this decision would affect how the federal government enforces a multitude of regulations.

Argi O’Leary, Principal, Advocacy, Ryan, opines that “I always assumed the Supreme Court would dodge Chevron deference by holding that the National Marine Fisheries Service’s interpretation was beyond its legal authority (“ultra vires”). Perhaps they’ll just knock it down a peg but not actually overrule it.”

Greg Rottjakob, Principal and National Leader, State Income and Franchise Tax, Ryan, noted: “If the court overturns or limits the deference doctrine, it may limit State’s abilities to enact “over-reaching” regulations that do not necessarily follow statutory language. An example of an over-reaching regulation is the Multistate Tax Commission’s (MTC) expanded nexus regulations. If these regulations are adopted by a state, they would essentially do away with the protections of P.L. 86-272. Many states have gone to a single sales factor apportionment formula. This methodology is essentially an incentive to locate people and assets in state and raise revenue from out-of-state companies based on in-state sales. .  Companies that are merely selling tangible personal property are protected under P.L. 86-272. .  Hence, the MTC expanded nexus rules are an example of interpretations to which the courts should NOT give deference. Congress should act and eliminate the protections of 86-272, not state revenue authorities.”

A decision on these cases should be published by the end of the court’s current term in June. 

Contact the experts at Ryan listed below with questions related to this challenge or for any other tax consulting needs.

1 Loper Bright Enterprises v. Raimondo, Case Number 22-451; Relentless Inc. et al. v. Department of Commerce, Case Number 22-1219.

2 Chevron U.S.A. Inc. v. Natural Resources Defense Council, 461 U.S. 837 (1984).


Mark Nachbar

Mary Bernard

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