No, not the one masterpiece of the relatively unsung French documentary filmmaker Pierre-Dominique Gaisseau. We’re far from New Guinea; we’re in Missouri, Michigan, Virginia, Illinois, and Oregon (or rather, only in Michigan) with Matthew L. Cutler and Shannon W. Cutler, 2015 T. C. Memo. 73, filed 4/9/15, and with Ch J Michael B. (“Iron Mike”) Thornton.

And Matt’s firm’s cross-bordering law practice, though incurring withholding for non-resident State income taxes, aren’t Schedule C above-the-line business deductions (the sky above), but rather below-the-line Schedule A types (the mud below).

And below is definitely mud, as one’s AGI rises, triggering any number of phase-outs, increases in SE and AMIT, and other outcomes best unenumerated. I don’t want to cause anyone discomfort.

Matt’s story is simple. His law firm (“HDP”), of which he is a principal, operates in each of the States above-stated, although he ventures not in any professional or business capacity outside the Wolverine State. The various taxing authorities, however, nail Mike for non-resident income tax, based upon the taxation of his firm’s (a Michigan professional limited liability company taxed as a partnership) activities within each such State.

Mike deducted his share of the non-resident taxes (here we’re concerned with Virginia’s) as business expenses on his Schedule C. “Right church, wrong pew”, says IRS, it’s Schedule A; and by the way, your AMIT and SE just went up.

Mike claims the withholding regime enacted by VA for the latter two years at issue make the taxes deductible on Schedule C, as imposed upon the partnership, and thus connected to his business. The partnership must withhold Mike’s tax or pay the tax itself, a course that would hardly endear Mike to his partners.

“Petitioners argue that Virginia expressly imposes a withholding tax on HDP that is separate from the income tax that Virginia imposes on HDP’s nonresident principals. The Virginia withholding tax statute provides that a partnership must pay a withholding tax for the privilege of doing business in Virginia. See id. sec. 58.1-486.2(A). Petitioners contend that a separate Virginia statute regarding the taxation of partnerships makes clear that the withholding tax is imposed on the partnership itself. See id. sec. 58.1-390.2. Reading these statutes together, petitioners argue, makes clear that the 2008 and 2009 Virginia taxes are entity-level taxes imposed directly on HDP. We are not convinced.” 2015 T. C. Memo. 73, at pp. 8-9.

VA is no different from Section 3402 withholding on wages. There is one tax, but more than one person from whom to collect it, namely, viz., and to wit, the employer and the employee.

If collected from the employer, that doesn’t make the taxes into business deductions as opposed to personal deductions for the employee.

Mike argues that, like the celebrated dog in the night-time, he did nothing in VA business-wise; never practiced there, saw a client there, or worked on a matter for any client there. Whatever HDP did there, he himself had no nexus with VA, and taxing him personally would be unconstitutional.

Ch J Iron Mike doesn’t mention International Shoe v. State of Washington, 326 U.S. 310 (1945), but I’ll bet Matt (or his counsel) did.

That doesn’t help Mike any more than a VA Circuit Court (Richmond City) decision. Ch J Iron Mike sneers “We are not bound by this unpublished lower court State decision. In any event, we find it inapposite.” 2015 T. C. Memo. 73, at p. 11. (Citation omitted).

I give Matt’s counsel a Taishoff “good try”, first class, for rooting out the case, and standing up for the old Commonwealth.

But the VA case concerned a partner with no management or control over the VA activities of the partnership. Matt never introduced the operating agreement of his outfit, and the MI default in their LLC law is any partner can do it all anywhere. Matt has nexus with VA.

Might want to consider an appeal on that point, ya think? Does what he could do bind him when he didn’t do it?

Matt claims the VA tax is imposed on the gross VA income, not the net, but Ch J Iron Mike reads the statute, and that isn’t what it says.

So Matt falls from the sky above, into the mud below.