State exit taxes are pre-empted

Despite compelling justifications for state and local exit taxes, they face several potential constitutional hurdles. State and local exit taxes may implicate several clauses of the United States Constitution and the respective state constitution. Taxing authorities may also face federal preemption, as a recently proposed federal bill would preclude all state and local exit taxes.106 As a practical matter, however, it can be difficult to invalidate a state tax statute on constitutional grounds. State and local tax disputes must generally be litigated in the respective state court system pursuant to the federal Tax Injunction Act.107 State court judges may be less comfortable analyzing federal constitutional issues, and most states’ tax trial courts are administrative bodies, many of which do not have jurisdiction to decide constitutional questions.10