Friday, November 27, 2015
Towns that have sued Verizon have lost. The issue is how market share is calculated. At best, as newer technologies displace old, it’s only a matter of time. Even if a particular town can demonstrate that Verizon’s market share is, for example, 53 percent, it only will be a matter of one or two years before it slips below 51 percent. From a long-term perspective, litigating the market share issue buys little and might not even be cost effective.
As a consequence of losing business personal property tax, towns are turning to other revenue sources, such as the property tax. This shifts the cost of public services from the business sector to the homeowner sector. Some citizens consider this to be an inappropriate outcome. Perhaps it is. But the solution rests with the state legislature. State legislatures, just like Congress, are notoriously sluggish when it comes to enacting legislation that deals with changes in technology, society, and culture. The problem reaches not only taxation but other areas of law as well. When the subject of a tax fades away, a replacement tax is necessary. If a legislature waits too long to enact the replacement or amend the existing tax, the revenue fix ends up looking like a dreaded “new” tax even though it isn’t new in that regard.
When a government enacts a tax on something that isn’t necessarily long-lived, it runs the risk of losing the tax base. On the other hand, imposing a tax on something that is likely to exist for a long time makes more sense. Pennsylvania, for example, does not tax equipment but instead taxes real property owned by utilities. Thus, it does not matter whether the utility is offering wire or wireless communications. The longer New Jersey waits to fix this problem, the greater the chances that the outcome will be disadvantageous for the towns and for those who pay local property taxes.
Wednesday, November 25, 2015
For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things. Aside from 2008, when I did not post and I don’t have any recollection of why or how that happened, I’ve dedicated a post on or around Thanksgiving. I started in 2004, with Giving Thanks, and continued in 2005 with A Tax Thanksgiving, in 2006 with Giving Thanks, Again, in 2007 with Actio Gratiarum, in 2009 with Gratias Vectigalibus, in 2010 with Being Thankful for User Fees and Taxes, in 2011 with Two Short Words, Thank You, in 2012 with A Thanksgiving Litany, in 2013 with “Don’t Forget to Say Thank-You”, and in 2014 with Giving Thanks: “No, Thank YOU!” .
As I stated the past two years, “I have presented litanies, bursts of Latin, descriptions of events and experiences for which I have been thankful, names of people and groups for whom I have appreciation, and situations for which I have offered gratitude. Together, these separate lists become a long catalog, and as I have done in previous years, I will do a lawyerly thing and incorporate them by reference. Why? Because I continue to be thankful for past blessings, and because some of those appreciated things continue even to this day.”
The idea of a finite list suggests that there is some sort of limit on what deserves gratitude. That is not the case. The simple reason for a finite list is the absurdity of an infinite list, which, given enough time, I probably could compile. With that caveat, here are some of the things that brightened 2015 for me:
- I am thankful that I have the time to travel to Rhode Island to visit my grandson (and, yes, his parents!).
- I am thankful that a bunch of new databases have appeared on genealogy web sites, letting me enlarge the various family histories I have been compiling.
- I am thankful that after two years of searching, my congregation identified and elected a new pastor/head of staff.
- I am thankful that the chancel choir continues to accommodate my oversight, enduring seating charts and dozens of emails.
- I am thankful that I had a chance to visit yet another Grand Canyon, this one much closer to home.
- I am thankful that the refrigerator did not need to be replaced and that a higher temperature in the freezer was a normal part of the defrost cycle.
- I am thankful for the people who have held doors open for me, and for those who have said thank you when I held doors open for them.
- I am thankful for all the people who, one way or another, have done, written, or said things that have inspired posts for this blog.
- I am thankful that my immigrant ancestors weren’t required to wear badges..
Have a Happy Thanksgiving. Set aside the hustle and bustle of life. Meet up with people who matter to you. Share your stories. Enjoy a good meal. Tell jokes. Sing. Laugh. Watch a parade or a football game, or both, or many. Pitch in. Carve the turkey. Wash some dishes. Help a little kid cut a piece of pie. Go outside and take a deep breath. Stare at the sky for a minute. Listen for the birds. Count the stars. Then go back inside and have seconds or thirds. Record the day in memory, so that you can retrieve it in several months when you need some strength.I am thankful to have the opportunity to share those words yet again.
Monday, November 23, 2015
I have written about this issue several times. In Why the “Toss Tax Records After Three (or Seven) Years” Advice is Bad, I shared the adverse consequences to a particular taxpayer of failing to keep tax records. In The Importance of Tax Record Keeping and The Aggravation of Tax Paperwork, I have stressed the need to be careful with respect to generating and retaining records for tax purposes. It may be an inconvenience, and it may contribute to paper or digital clutter, but it is essential.
Eleven years ago, in To E-File or Not to E-File: That is The Question, I noted:
Though some people don't hold onto their tax returns for more than say, 3 or 7 years, relying on the statute of limitations, I recommend holding onto all returns, if for no reason other than to maintain records of basis and to guard against the strange day when the IRS claims a return from some years ago was not filed, which would open the statute of limitations, and which can be rebutted quite easily by providing a copy of the return.Last week, in a webinar, an IRS expert on S corporations explained that tax returns from previous years can help taxpayers figure out their adjusted basis in S corporation stock. Though I would expect this to be common knowledge in the tax practice world, the IRS apparently thought it necessary to drive the point home. Perhaps they had been noticing the listserv discussion and the many websites advocating tossing out tax returns after three or seven years.
And, of course, it’s not just adjusted basis in S corporation stock that requires examination of previous years’ tax returns. And it’s not just tax returns. When a person sells his or her home, and needs to determine adjusted basis, how old are the records proving the cost of improvements made to the property? Often they are more than three or seven years old. The ability to separate value from clutter is important. Yet very few people learn this skill in school, only some learn it from their home environment, and many end up suffering because they aren’t aware of the need to distinguish between the two. Is it time for me to create and teach a new course?
Friday, November 20, 2015
There are rules that prohibit people from performing open heart surgery if they lack the appropriate education, training, and certification. Ought there not be a similar rule that prohibits people lacking the appropriate education, training, and certification from designing tax, or any other sort of, law? Oh, wait, the folks who advocate the “flat tax” are almost coterminous with those who want to rid the world of government regulations. I wonder what they will be thinking when they’re being wheeled into the flat-line operating room. Good luck.
Wednesday, November 18, 2015
Now comes commentary about the effectiveness of these sorts of tax breaks for the corporate wealthy. Joel Naroff summarizes a report by KPMG and the Tax Foundation comparing companies that receive these tax breaks with the companies that do not qualify for them. The summary matches my previous conclusions: “But when it comes down to it, the tax breaks usually just move firms around a region and, on net, rarely yield much.” Well, they rarely yield much for the taxpayers footing the bill, but they yield quite a bit for the corporate owners who are already drowning in cash and profits. New Jersey has handed tax breaks to such impoverished outfits as the Philadelphia 76ers, Lockheed Martin, and Subaru.
The report also reveals who creates the new jobs, and it’s an eye opener. Of the new jobs created in a state, 80 percent are generated by companies already operating in the state. Another 19 percent are generated by companies started up in the state. A mere one percent comes from companies that relocate into the state or that decide to remain in the state when faced with the option of leaving. In New Jersey, which, according to Naroff, “opens its wallets wide when it comes to new companies,” ends up imposing high taxes on its resident companies while letting businesses that come into the state pay low taxes even though they are not among the 99 percent creating jobs.
And that brings up the next issue. The owners of companies doing business in a state that see tax breaks being handed to out-of-state companies that bring jobs across the border must wonder why they should stick around and contribute to state-funded increases in local competition. A state that hands out tax breaks, and gets next to nothing in terms of new job creation, risks watching its native companies head out for another location. And that produces, not job creation, but job loss for the state.
Monday, November 16, 2015
When I read the CNN Reality Check Team’s response to Fiorina’s claim, I was delighted. The team explained that Fiorina probably was “referring to an oft-cited report from CCH” that contains more than 72,000 pages, but that the tax code is only a small part of it. The team correctly noted that most of the almost 73,000 pages consisted of regulations, explanations, and legal analysis. I even deluded myself for a moment that someone on CNN’s Reality Check Team had read one or more of my posts on the question. In a series of posts beginning with Bush Pages Through the Tax Code?, and continuing with Anyone Want to Count the Words in the Internal Revenue Code?, Tax Commercial’s False Facts Perpetuates Falsehood, How Tax Falsehoods Get Fertilized, How Difficult Is It to Count Tax Words, A Slight Improvement in the Code Length Articulation Problem, and Tax Ignorance Gone Viral, Weighing the Size of the Internal Revenue Code, Reader Weighs In on Weighing the Code, Code-Size Ignorance Knows No Boundaries, and Tax Myths: Part XII: The Internal Revenue Code Fills 70,000 Pages, I explained why the Code is nowhere near 70,000 pages, how the misinformation was developed and spread, and why the Code is no more than two thousand pages long. The 70,000-page claim, or one of its variants, is silly, easily debunked, and indicative of America’s tax ignorance, yet it is sustained by those who use it as a vote-grabbing ploy as well as by those who do not want to pay taxes though they enjoy the benefits of government revenue.
But when I read the next assertion analyzed by the CNN Reality Check Team, it became clear that I had deluded myself into thinking that anyone on the team had read any of my commentary on the issue of tax code size. The team relied on a statement by the IRS Taxpayer Advocate describing the code as having “reached nearly 4 million words.” It concluded that Cruz was correct, because the Bible contains about 800,000 words. But as I explained in and Tax Ignorance Gone Viral, the IRS Taxpayer Advocate reached the wrong conclusion because she, or someone on her staff, simply used a word processing program to count the words in an annotated version of the Code, that is, an edition that contained extraneous information that is not part of the Internal Revenue Code. The CNN Reality Check Team actually noted that the count had left in “components such as amendment descriptions and cross-references,” which any intelligent person would realize meant that more than the words in the Code itself had been counted and included in the 4 million total. But another aspect of thinking things through should have caught the attention of the team. The team had concluded there were 2,652 pages in the Code. It also agreed that there are 4 million words in the Code. That works out to 1,508 words per page. Either the font is microscopic or the pages are on the order of three feet by two feet. There are about 400,000 words in the Code, or about half of what is in the King James version of the Bible.
Of course, I sent feedback to CNN, though its web pages make it challenging to do so, and do not provide any way of sending a reaction to the team or the two members of the team whose names are attached to the analyses of the Fiorina and Cruz tax code nonsense. So far, I've had no response and have not seen any published correction. One would think that a news organization would welcome, and find ways to encourage, acquisition of information that enlightens its viewers and readers.
For all of the talk from candidates about jobs, do they not realize that without education the chances of creating or finding a job are significantly reduced, if not eliminated? For all of their talk about international competitiveness, do they not understand the advantage of education and the detriment of ignorance? However understandable, though outrageous, it is for candidates to spew nonsense and misinformation, it is even more threatening to the survival of democracy for journalists to participate in this behavior and to fail to do sufficient research, or even to make it possible for research to be handed to them, free of charge.
I’ve been asked by readers why this issue of Internal Revenue Code size repeatedly gets my attention. It’s not the issue in and of itself. My concern is that twisting such simple facts is but the tip of the iceberg when it comes to the twisting of facts on other, and more serious, issues. Lying for the purpose of advancing an agenda not only is wrong, but also suggests that the agenda is deficient, because if it cannot gain support when the truth is told, it ought not be advanced. As long as Americans buy into the ignorance, the nation will continue sliding on its downward path to the disappearance of democracy and freedom. Count on it.
Friday, November 13, 2015
Each government department or agency that computes an inflation adjustment does so in accordance with a formula provided in a statute. The formula for one adjustment is not necessarily the same as the formula for another. Different indexes of inflation are used. The benchmark year differs. Depending on what is being adjusted for inflation, one or another index is used. Some of those indexes are explained by the Federal Reserve. Does it make sense to use different indexes? Yes. The index used to adjust tax brackets is the Consumer Price Index. The index used to make adjustments to social security payments is the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. Does it make sense to use different benchmark years? Maybe.
But, in any event, the reason that the “different sectors” of government are using different formulas for computing inflation is the difference among the governing statutes. Has the Congress studied these inflation adjustments from an overarching perspective? No. Even the different dollar amounts in the Internal Revenue Code are treated differently; some are indexed, and others are not. The same index is not used for all of the adjustments. The reason? It depends on how much revenue loss can be absorbed in the revenue estimates. In some instances, inflation adjustments are omitted because doing so reduces the revenue loss over the long-term periods used in the budgetary analysis.
Does it make sense to do things this way? Perhaps. Should there be an overarching review of inflation adjustments throughout federal statutes and programs? Yes. Is it going to happen? I doubt it. Who is responsible? Congress. And that’s why I doubt it will happen.
Wednesday, November 11, 2015
A recent tax case, not unlike many other tax cases, provides a disappointing insight into human nature. Unlike cases involving improper exclusions and unjustified deductions, this case poses the question, “What should I do if someone makes a mistake in my favor and pays me twice?” In Willson v. U.S., No. 14-1109 (D.C. Cir. 6 Nov 2015), the Court of Appeals for the D.C. Circuit provided the answer that most people would give.
The problems for the taxpayer began in 2005. When filing his 2004 federal income tax return, the taxpayer determined that he overpaid his taxes by more than $28,000. He applied the overpayment as a credit on his 2005 return. A year later, that credit was more than enough to cover his 2005 liability, so he applied the remaining $13,193.55 overpayment to his 2006 return. In 2007, when filing his 2006 return, the taxpayer computed a zero liability, qualified for a refundable $30 credit, and ended up with a $13,223.55 overpayment. This time, the taxpayer requested a refund of $10,000 and applied the remaining $3,223.55 as a credit for subsequent returns.
As simple as that is, the IRS made a mess. When it processed the taxpayer’s 2006 return, it did not apply the $3,223.55 as a credit for future years. Instead, it send a check for $13,223.55 rather than the $10,000 that was requested. When the taxpayer filed his 2007 return, the IRS applied $13,223.55 as a credit from the 2006 overpayment. In other words, the IRS somehow managed to take one $13,223.55 overpayment and turn it into a $13,223.55 refund AND a $13,223.55 credit. The IRS increased that credit by a $600 tax relief credit and $85.48 in interest, applied $3,223.55 as a credit for 2008 and thereafter, and made a direct deposit of $10,685.48 to the taxpayer’s bank account.
When the IRS figured out it had done something wrong, it reversed the overpayment credit for the 2006 taxable year, which created a $13,193.55 tax liability for that year. In March 2011, the IRS sent the taxpayer final notice of intent to levy on his property to recover that amount. The taxpayer requested a collection due process (CDP) hearing. As that procedure moved along, the IRS processed the taxpayer’s 2009 return, which reported an overpayment credit, from 2007 and 2008, of $2,206.55. Because the taxpayer, in March 2010, had paid $100 applied to his 2009 liability, the IRS increased the 2009 overpayment to $2,306.55. The IRS did not refund this amount, nor did it apply it as a credit for subsequent years. Instead, it applied it as an offset to the $13,193.55 2006 liability created by the overpayment credit reversal.
It was at this point that the taxpayer realized he had received his expected refund twice. On May 24, 2011, he sent a letter to the IRS acknowledging he had received more than he was due, estimated the overpayment to him was about $10,000, and enclosed a check for $5,000 “not as payment for the 2006 demands which are clearly errors but as an immediately affordable amount to being returning an overpayment made entirely as an IRS error.” He offered to pay another $6,000 over three years.
On July 6, 2012, the IRS Appeals Office issued a final notice of determination sustaining the proposed levy. The $13,193.55 had been reduced by the $5,000 payment from the taxpayer and the $2,306.55 2009 overpayment, to $5,887. The taxpayer appealed the IRS determination to the Tax Court. The IRS conceded it was not permitted to collect the duplicate refund by creating a new assessment for 2006. Its options were to pursued an erroneous refund action, for which the statute of limitations had expired, to accept the taxpayer’s voluntary repayment, or to exercise its common-law right to offset a debt owed to the government with a debt owed to the taxpayer provided it did so within two years of the date of the erroneous refund. Because the assessment for 2006 was improper, the IRS abated the assessment, leaving a zero balance on the taxpayer’s 2006 liability. It determined it was barred by the statute of limitations from applying the 2009 overpayment to the refund, and refunded that amount to the taxpayer.
At that point, because there was no unpaid liability and no pending levy, the IRS moved to dismiss the case as moot. The taxpayer objected. The IRS had not refunded the $100 tax payment made in March 2010, which was within two years of the erroneous refund. The IRS did not return the $5,000 the taxpayer paid voluntarily in May 2011. The taxpayer requested that those amounts be returned and that the Tax Court had the power to order the requested repayment. The Tax Court disagreed, and the taxpayer appealed.
The Court of Appeals affirmed the decision. It held that the Tax Court’s jurisdiction was limited to the tax liability underlying the proposed levy. The underlying tax liability had been abated. The $5,100, according to the court, was not held against an underlying tax liability but was retained to recover an erroneous refund. The debt created by an erroneous refund is not a tax liability. Instead, it is an amount owed to the government by reason of unjust enrichment. The Court dismissed the taxpayer’s other arguments contesting the levy because the proposed levy would not occur due to the abated assessment.
It is unclear why the taxpayer sought the return of the $5,100. What makes it even more puzzling is that the taxpayer acknowledged he had received a double refund, had returned part of it, and proposed paying back the rest. Once the IRS abated the 2006 liability, the taxpayer was no longer at risk of losing property to levy, and thus had the choice of paying back the rest of the erroneous refund, doing nothing, or seeking a return of the $5,100. Rather than paying back the balance, and rather than doing nothing and taking the benefit of a windfall caused by an error, the taxpayer went for a much bigger windfall. In other words, the taxpayer argued for an outcome that amounted to a right to keep a duplicate refund. Whatever the law might provide or require, the decent thing to do is to return the money.
Most people don’t end up with duplicate refunds from the IRS. But many people have experienced store clerks handing them too much change. I have had that experience. What have I done? What I have done has brought gasps of “thank you” from store clerks who would have been held accountable personally for the error. And that just would not have been right. The sad part is that there are people who disagree with me. And they have told me so. The happy part is that they are outnumbered by those who agree with me. So what would you do if you happened to receive duplicate, or, can one imagine, triplicate, refund checks?
Monday, November 09, 2015
Had he stopped at that point, the commentary would not have inspired me to write anything. But Giovanetti then proceeded to offer this claim:
Workers don't have money to save because of 1) the increasingly anemic Obama economy, 2) skyrocketing health insurance premiums mandated by Obamacare, and 3) the Social Security payroll tax, which comes out of the first dollar of a worker's earnings and funds a Social Security benefit that doesn't even keep up with inflation for most recipients.He couldn’t be more wrong. Workers don’t have money, to save or spend, because the oligarchs are jacking up corporate CEO salaries while cutting the pay of rank-and-file employees, with more than 95 percent of economic gains over the past seven years benefitting the top one percent. The economy has grown, but only to the benefit of the oligarchs, and to the extent it is anemic, it is because consumers lack money to make purchases, in turn a consequence of stagnant rank-and-file wages, the trimming of worker hours to spare the oligarchs the cost of paying for worker benefits, and the laying off of employees as huge corporations gobble up other businesses and sack the employees of the acquisition. Health insurance premiums are skyrocketing because private companies, which exist to make profits, are doing what profit-seekers will do in the absence of any countervailing pressure, namely increase revenues by increasing prices. And as for the social security tax being a problem, that tax has existed when the economy was robust and rank-and-file shared in the nation’s prosperity, and it has existed when the economy has stagnated or regressed. Thus, if it is to be blamed for stagnation in the economy it also should be credited with economic prosperity.
Isn’t it time for those who have created the economic mess to admit that there is a mess and that what was done has failed? Isn’t it time for those who keep singing the praises of those who messed up the economy to admit that they are fans of losers, and to shift their allegiances and advocacy to what worked in the past and ought to be revived?
Friday, November 06, 2015
Now comes news that income inequality is “transforming the chocolate business.” According to Hershey Co., the “growing gap between low and high-income households .. . has changed buying patterns.” High-income consumer are shelling out big bucks for premium brands, and low-income consumers are making fewer shopping trips, thus reducing the impulse purchase of chocolate (and other items).
Hershey calls it “consumer bifurcation.” In other words, those who share in the new prosperity exist in a market close to those who have been shut out of the new prosperity. Hershey is not alone, as other companies, such as Campbell Soup, have experienced the same consumer bifurcation.
I doubt that those who consider income and wealth inequality to be a good thing care one whit about its effect on chocolate consumption or, for that matter, the availability of any other sort of consumer product. But eventually they will, as they discover, just as these food companies are discovering, that a healthy economy is demand-driven. Demand drives supply because it creates a market. Supply does not drive demand because demand cannot exist when income and wealth are concentrated in a few. Perhaps now that people are finding chocolate to be more expensive and are consuming less, they might devote some serious time to thinking and learning about economics. Part of me, though, thinks it won’t happen until consumer bifurcation reaches the coffee market. Then we might see some very angry consumers.
Wednesday, November 04, 2015
First, would people not be tempted to avoid reporting places where they can get good deals on pizza? Knowing why they’re being asked to provide information to law enforcement officials, are they not likely to conclude that doing so would cause closure of their favorite pizza shop?
Second, is it not possible to question the reasoning of the authorities that brought them to the conclusion that cheap pizza equals tax evasion? According to the authorities, roughly one-third of the cost of a pizza covers ingredients, another one-third covers labor, and the rest is split among rent, miscellaneous fees, and taxes. Is it not possible for a pizza seller to find a good deal on rent or ingredients? Of course, perhaps there is some law-breaking underway but it’s not necessarily tax evasion. Are they skimping on wages? Are they obtaining cheap ingredients from an unsafe or unregulated source, or perhaps on a black market? Or perhaps some pizza shops are bringing in other revenue under the table. Are pizzas being sold as a cover for the sale of other items? Or perhaps an effort is underway to take over competitors by pricing them out of the market.
Seems to me that the best way to figure out if taxes are being evaded is to audit the pizza shops. Compare the volume of observed and reported transactions, and the taxes due on them, with the actual taxes being paid. Otherwise folks in Finland will end up being asked or required to report every transaction that they think is a “good deal.”
Monday, November 02, 2015
Now comes a report that the taxpayers of St. Louis are going to be on the hook for financing a good chunk of the cost of building a new football stadium in that city for the St. Louis Rams. The proposed legislation, which the politicians hope “is generous enough” for the impoverished folks of the NFL, would give to the team two-thirds of taxes generated by the stadium. The city and the state would be required to come up with $390 million of the cost of the $1 billion stadium, in addition to giving up two-thirds of the tax revenue. Allegedly an NFL executive considered tax dollars used to finance the city’s share of the construction costs to be “private dollars, not public.”
It is unclear, according to several city officials, how the numbers add up. Under the current arrangement for the existing stadium, the city collects $4 million a year in tax revenue from the team but pays $6 million each year to pay down construction debt. An assistant to the mayor projects that under the proposed deal, the city will continue to pay $6 million annually but receive only $2 million in tax revenue. Supporters of the proposal claim that the city will receive additional revenue from the construction and that the tax revenue might grow more than is expected.
As I asked in Where’s the Promised Trickle-Over?, where is the guarantee that this will work for the taxpayers as promised? Why are those who so intensely claim that the latest giveaway to the wealthy will benefit everyone else so reluctant to ensure that if it doesn’t work out as promised that they will step up and make up the shortfall? The answer is that they know that these deals do not deliver as promised, but they’ve learned the tricks of selling bad deals.
The same people who are quick to complain about spending and tax breaks that help people in need are just as quick to insist on spending and tax breaks that enrich the rich. The claim that it helps those in need has been disproven repeatedly. When people complain that a state or local government fails to support highway maintenance, education, environmental protection, and public health, do they ever consider that the shortage is attributable to giveaways to those who are the first to condemn “takers”? The perspective that taking is good when it benefits the wealthy but is bad when it benefits those in need reflects a deeper outlook. The notion that those in need are in that condition because they are lazy, and that those who have wealth and deserve even more because they are hard-working flies in the face of reality. There are plenty of people who want to work but cannot for a variety of justifiable reasons, and there are too many people who are wealthy simply because of the accident of birth or other incident of sheer luck. It is time for the self-designated “makers” to make something more than increased wealth for themselves.
The NFL and its teams, as well as the other professional sports leagues and franchises, do not need financial assistance from the public. They do not need, and ought not seek, additional funds that require increased taxes for others or reductions in public benefits for everyone else. If a professional sports league or one or more of its teams cannot survive on its own revenue and must go out of business, so be it. People who want these enterprises to succeed can patronize them, and find other ways to support them financially without shifting that burden to others.
Saturday, October 31, 2015
Now we learn that the issue I noted in Halloween and Tax: Scared Yet? (2005), the different sales tax treatment in some states between candies made with flour and those that are not, has caught the eye of the consumer. Flour is used in candies such as licorice, KitKats, and Nestle’s Crunch. In a Napa Valley Register commentary, Jill Cataldo describes the bewilderment faced by her sister when her sister noticed that the sales tax on Twix bars was much lower than the sales tax on Snickers purchased for the same cost. Cataldo did some research and discovered what I had described ten years ago, that in her sister’s state and in many others, the presence of flour in an edible item causes the item to be classified as “not candy” and thus subject either to a lower sales tax or no sales tax. So, as she points out, chocolate covered cherries are candy and thus receive less favorable sales tax treatment. Chocolate covered pretzels are treated as “food” and either escape sales tax or are taxed at a more favorable rate.
Cataldo made the point that consumers looking to save a few pennies on Halloween candy purchases should look for those items that contain flour. I wonder how many people can make a list, without looking it up, of so-called candy that is treated as food under sales tax laws because they contain flour. However many people can do so, I’m confident that the number of people who can explain why this difference exists is far fewer. I can guess, but it really makes no sense to conclude that the inclusion of flour makes the item sufficiently nutritious to deserve more favorable sales tax treatment.
The most important question, though, is how many people are going to hand out Kit Kat bars or Nestle’s Crunch and tell the children, “This really isn’t candy.” My guess, and hope, is zero, because I can’t imagine anyone wants the youngsters running through the neighborhood shouting, “Those people gave us something that they said isn’t candy,” or, worse, “Those people have problems, because they gave us candy and said it wasn’t candy.” I prefer to have a repeat of what the children exclaim when they leave my front door, “He’d giving out Reese’s Peanut Butter Cups.” Indeed. Truly nutritious food. How scary is that notion? Happy Halloween.
Friday, October 30, 2015
Where is the parade? The one that has my attention is in New Jersey, but there are similar parades all over the nation. The New Jersey parade gives away tax dollars to prosperous corporations. Why? Because those corporations threaten to leave New Jersey or to refrain from coming to New Jersey even though at least some of them don’t have much of a choice. Here are some of the featured participants:
- The Philadelphia 76ers, as described in In When the Poor Need Help, Give Tax Dollars to the Rich.
- Lockheed Martin, as described in Fighting Over Pie or Baking Pie?.
- Subaru, as described in Why Do Those Who Dislike Government Spending Continue to Support Government Spenders?.
- Berry & Homer, as described in When Those Who Hate Takers Take Tax Revenue
One of the arguments put forth by the anti-government-spending folks is that it is bad morally, socially, and politically to collect taxes from one group and to disburse the receipts to another group. These folks like to brand the first group as “makers” and the second group as “takers.” Yet when the takers are their friends and allies in the movement to feudalize America, not a peep is heard from them.Previously, in Why Do Those Who Dislike Government Spending Continue to Support Government Spenders? I had written:
New Jersey, governed by a member of the political party that is trying to consolidate its power by demonizing “takers,” provides an excellent example of the hypocrisy entrenched in this modern reverse Robin Hood philosophy. * * *
Though this tax revenue giveaway game has been underway for several years, there is no sign that the economic condition of Camden’s residents have improved. The folks in Trenton who rail against government spending cut education spending, job training spending, social welfare assistance, and a variety of other expenditures denounced as enabling “takers” to feed at the public trough. Yet in the meantime, a state that faces deficits in its transportation infrastructure budget continues to funnel taxpayer dollars into the hands of companies with sufficient political connections to snag some funds for themselves. * * *
At what point will enough voters see through the con game and send packing the takers who took over political control by demonizing takers? When will political hypocrisy disappear? At what point will people realize that economic growth consists of creating something of economic value and not simply moving jobs from one place to another?
There’s something not quite right in the collective psyche of the anti-government-spending crowd. Enraged by high taxes, they manage to put into office, and keep in office, people who dish out tax revenues as though there were no limits on taxation. Of course, the tax breaks go to those who are in least need of economic assistance. Their excuse, that they will use the tax breaks to help those in need, is hilarious, because the best way to help those in need is to direct assistance directly to them so that they can infuse those dollars into the economy. That makes the economy grow. Handing tax dollars to those who don’t need financial assistance is nothing more than helping some people grow their Swiss bank stash.These words have not reached the eyes of those lining up their corporate friends for parade entry, and in the off chance they are aware of the criticism, from myself and others, they are overwhelmed by the focus on monetized power politics.
So could it be time for “if you can’t beat them, join them”? Not for those of us who lack the resources to sign up for the parade, or perhaps what should be called the corporate gravy train. That is the essence of what is wrong with this nation’s economic condition. Those with more than sufficient money can afford to get more money, and those with insufficient funds are too poor to get more money from the legislative handout machine. Eventually they will have everything and the rest of us will have nothing. By then, it will be too late. The parade will be over, and almost all of us will have been left out.
Wednesday, October 28, 2015
In a recent case, Canna Care, Inc. v. Comr., T.C. Memo 2015-206, the Tax Court rejected the taxpayer’s claim that it was not engaged in a trade or business because California law prohibits the distribution of marijuana for profit and the parties stipulated that the taxpayer was not operated for profit. The Tax Court explained that the fact the taxpayer was operated in accordance with California’s restriction on profiting from distributing marijuana did not affect its finding that the taxpayer was engaged in the business of distributing marijuana for purposes of section 280E. The court noted that the salaries paid to the taxpayer’s owners were “well in excess” of those paid to its other employees, an indication that the taxpayer had been formed to generate income.
According to the court’s recitation of the facts, the taxpayer was owned by a married couple who had six children and were facing financial hardship compounded by increased tuition expenses for those children. The husband “turned to his faith for a solution. After much prayer, [he] was convinced that God wanted him to open a medical marijuana dispensary to solve his family’s financial woes.” Because the husband’s prayer was motivated by a desire “to cure his family’s financial difficulties,” the claimed divine inspiration did not absolve the taxpayer of the restriction imposed by section 280E.