There has been significant controversy on the constitutionality of Retroactive state taxation. There have been uproars from various quarters on the violation of the retroactive action on taxes. The various bills which have been passed are viewed as violating the due process guarantees of the Fifth Amendment. The argument against the legislative retroactive action on tax deductions has been based on the stability, reliability and fairness of the tax system. Changing, retroactively laws which cover time periods for which tax has already been legally attached inevitably raises questions: questions of economic stability, questions of whether the tax system can be relied on and questions of whether the tax system is being fair.

A close cross examination of these questions brings up the issue of retroactive changes on the law specifically targeting the tax system violating the due process and hence the constitution. It is true that the taxpayers whether corporate bodies or individuals base their future financial decisions on current tax system. As a matter of fact it is absurd for the legal system to enact laws which undermines the decisions its subjects especially where such decisions are likely to cause harm to the subjects. At times retroactive changes may lead to unintended consequences for corporate bodies’ financial reporting.

This thesis is a contribution to the argument: Does the retroactive state taxation pass scrutiny under the Due Process Clause? The stand of the thesis is that it does not pass the scrutiny therefore it is unconstitutional. The thesis will show that the legislative changes to the tax statutes do not do not meet the requirements of Due Process clause needed for them to be effected. The thesis will use the most recent U.S. Supreme Court opinion on retroactive tax legislation {United States v. Carlton, 512 U.S. 26 (1994)}. Past opinions and relevant examples and arguments are brought forth in defense of the stand of this thesis.   

The thesis is structured into three parts: the first part sets the foundation of the argument; it shows the constitutional standard for retroactive taxation. The second part examines the state trends and leading cases. The third part conclusively examines the benefits and the detriments of the retroactive state taxation.