No Liability: Understanding tax laws, in general

Thursday, February 23, 2006

Understanding tax laws, in general

Post 6 of 11

Since the income tax is such a complex and bewildering morass of legalese it is imperative that you are able to ask specific questions about what you are looking for. First, what kinds of different taxes are there and what kind are we dealing with?

"In fact, the two great subdivisions embracing the complete and perfect delegation of the power to tax and the two correlated limitations as to such power were thus aptly stated by Mr. Chief Justice Fuller in Pollock v. Farmers’ Loan & T. Co., 157 US 429, 39 L.ed. 759, 15 Sup. Ct. Rep. 637, at page 557: 'In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.'"

"...the conclusion reached in the Pollock Case... recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such..."

Brushaber v. Union Pacific R.R. Co., U.S. Supreme Court, 240 US 1 (1915)

So the income tax is an indirect tax called an excise, what is an excise?

"Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’"

Flint v. Stone Tracy Co., U.S. Supreme Court, 220 US 107 (1910)

What do normal excise taxes look like? The following are various other excise taxes which have not to my knowledge ever been called, nor mistaken to be, voluntary (portions have been deleted to conserve space):

Title 26 United States Code “Internal Revenue”

Subtitle D. Miscellaneous excise taxes

Chapter 32. Manufacturers excise taxes

Subchapter D. Recreational equipment

Part I. Sporting Goods

§4161. Imposition of tax

(a) Sport fishing equipment

(1) Imposition of tax

There is hereby imposed on the sale of any article of sport fishing equipment by the manufacturer, producer, or importer a tax equal to 10 percent of the price for which it is sold.

(b) Bows and arrows, etc.

(1) Bows and arrows

There is hereby imposed on the sale by the manufacturer, producer, or importer- (A)(B) a tax equal to 11 percent of the price for which so sold.

(2) Parts and accessories

There is hereby imposed on the sale by the manufacturer, producer, or importer- (A)(B) a tax equivalent to 11 percent of the price for which so sold.

§4162. Definitions; treatment of certain resales

(1) In general

If- (A)(B)(C) then such related person shall be liable for tax under section 4161 in the same manner as if such related person were the manufacturer of the article.

Chapter 36. Certain other excise taxes

Subchapter F. Tax on the removal of hard mineral resources from deep seabed

§4495. Imposition of tax

(a) General rule

There is hereby imposed a tax on any removal of hard mineral resource from the deep seabed pursuant to a deep seabed permit.

The tax imposed by subsection (a) shall be paid by the person to whom the deep seabed permit is issued.

Chapter 38. Environmental taxes

Subchapter A. Tax on petroleum

§4611. Imposition of tax

(a) General rule

There is hereby imposed a tax at the rate specified in subsection (c) on-

(1) crude oil received at a United States Refinery

(2) petroleum products entered into the United States for consumption, use, or warehousing.

(b)Tax on certain uses and exportation

(1) In general

If- (A)(B) then a tax at the rate specified in subsection (c) is hereby imposed on such crude oil.

(d) Persons liable for tax

(1) Crude oil received at refinery

The tax imposed by subsection (a)(1) shall be paid by the operator of the United States refinery.

(2) Imported petroleum product

The tax imposed by subsection (a)(2) shall be paid by the person entering the product for compensation, use, or warehousing.

(3) Tax on certain uses or exports

The tax imposed by subsection (b) shall be paid by the person using or exporting the crude oil, as the case may be.

Subchapter B. Tax on certain chemicals

§4661. Imposition of tax

(a) General rule

There is hereby imposed a tax on any taxable chemical sold by the manufacturer, producer, or importer thereof.

(1) Use treated as sale

Except as provided in subsection (b) and (e), if any person manufactures, produces, or imports any taxable chemical and uses such chemical, then such person shall be liable for tax under section 4661 in the same manner as if such chemical were sold by such person.

Subtitle E. Alcohol, tobacco, and certain other excise taxes

Chapter 51. Distilled spirits, wines, and beer

Subchapter A. Gallonage and occupational taxes

Part I. Gallonage taxes

Subpart A. Distilled spirits

§5001. Imposition, rate, and attachment of tax

(a) Rate of tax

(1) General

There is hereby imposed on all distilled spirits produced in or imported into the United States a tax at the rate of $12.50 on each proof gallon and a proportionate tax at the like rate on all fractional parts of a proof gallon.

§ 5005. Persons liable for tax

(a) General

The distiller or importer of distilled spirits shall be liable for the taxes imposed thereon by section 5001(a)(1).

Subpart C. Wines

§5041. Imposition and rate of tax

(a) Imposition

There is hereby imposed on all wines (including imitation, substandard, or artificial wine, and compounds sold as wine) having not in excess of 24 percent of alcohol by volume, in bond in, produced in, or imported into, the United States, taxes at the rate shown in subsection (b), such taxes to be determined as of the time of removal for consumption or sale.

§5043. Collection of taxes on wines

(a) Persons liable for payment

The taxes on wine provided for in this subpart shall be paid-

(1) Bonded wine cellars

In the case of wines removed from any bonded wine cellar, by the proprietor of such bonded wine cellar, except that- (A) (B)

(2) Foreign wine

In the case of foreign wines, by the importer thereof.

(3) Other wines

... by any person producing, importing, receiving, removing, or possessing such wine; and all such persons shall be jointly and severally liable for such tax with each other as well as with any proprietor, transferee, or importer who may be liable for the tax under this subsection.

Subpart D. Beer

§5051. Imposition and rate of tax

(a) Rate of tax

(1) In general

A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States

§5054. Determination and collection of tax on beer

(a) Time of determination

(1) Beer produced in the United States

... The tax imposed by section 5051 on beer produced in the United States shall be determined at the time it is removed for consumption or sale, and shall be paid by the brewer thereof in accordance with section 5061.

Subpart E. General Provisions

§5061. Method of collecting tax

The taxes on distilled spirits, wines, and beer shall be collected on the basis of a return.

Chapter 52. Cigars, cigarettes, smokeless tobacco, pipe tobacco, and cigarette papers and tubes

Subchapter A. Definitions; rate and payment of tax; exemption from tax; and refund and drawback of tax

§5701. Rate of tax

(a) Cigars

On cigars, manufactured in or imported into the United States, there shall be imposed the following taxes: (1)(2)

(b) Cigarettes

On cigarettes, manufactured in or imported into the United States, there shall be imposed the following taxes: (1)(2)

On each book or set of cigarette papers containing more than 25 papers, manufactured in or imported into the United States, there shall be imposed a tax of 1/2 cent for each 50 papers or fractional part thereof

§5703. Liability for tax and method of payment

(a) Liability for tax

(1) Original liability

The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by section 5701

Chapter 53. Machine guns, destructive devices, and certain other firearms

Subchapter A. Taxes

Part II. Tax on transferring firearms

§5811. Transfer tax

(a) Rate-

There shall be levied, collected and paid on firearms transferred a tax at the rate of $200 for each firearm transferred, except...

(b) By whom paid-

The tax imposed by subsection (a) of this section shall be paid by the transferor.

Part III. Tax on making firearms

§5821. Making tax

(a) Rate

There shall be levied, collected, and paid upon the making of a firearm a tax at the rate of $200 for each firearm made.

(b) By whom paid

The tax imposed by subsection (a) of this section shall be paid by the person making the firearm.

As you can see two particular aspects of these laws have been emphasized, the imposition of the tax and the liability statement. Notice the consistent use of particular phrases. Notice that these two statements always occur within the same section (§) or within a subpart. It is clear that these tax laws leave little to the imagination by using very specific language. There are very good reasons for this clarity and precision:

"In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the Government, and in favor of the citizen."

Gould v. Gould, U.S. Supreme Court, 245 US 151, 153 (1917)

"If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer."

U.S. v. Merriam., U.S. Supreme Court, 263 US 179 (1923)

"The provision is part of a taxing statute; and such laws are to be interpreted liberally in favor of the taxpayers."

Bowers v. N.Y. & Albany, U.S. Supreme Court, 273 US 346 (1926)

"It is elementary that tax laws are to be interpreted liberally in favor of taxpayers and that words defining things to be taxed mat not be extended beyond their clear import. Doubts must be resolved against the Government and in favor of taxpayers."

Miller v. Nut Margarine Co., U.S. Supreme Court, 284 US 498, 508 (1931)

"...the statute in that respect [is] ambiguous. In such a situation the beneficiary is entitled to a favorable construction because liability for taxation must clearly appear."

Higley v. Commissioner of Revenue, Eighth Circuit Court of Appeals, 69 F.2d 160 (1934)

"A tax is a legal imposition exclusively of statutory origin, and, naturally, liability to taxation must be read in the statute, or it does not exist."

Bente v. Bugbee, New Jersey Supreme Court, 103 NJL 608 (1927)
(emphasis mine)

So it is obvious that in order for a statute to validly impose a tax it must be clear and unequivocal in its language. Let’s pretend you are a brewer of large quantities of beer. It is clear that you are legally obligated as a “brewer” by sections 5051, 5054, and 5061 to pay taxes and to make returns regarding your brewing operations. In this case it is a clear cut job for an IRS investigator to identify the exact items you are producing and on that basis determine that you might be avoiding your legal duty if you have not filed tax returns recently. In regards to those very taxes there are provisions in the law which empower armed agents of the government to do just that type of investigating. While there is an element of self-assessment it would be absurd to claim that these taxes are voluntary.