MauledAgain

A recent Tax Court case, Wainwright v. Comr.. T.C. Memo 2017-70, provides a lesson in how not to claim a residential energy credit. The taxpayer and his friend worked and lived together. They lived in a home that the friend had purchased before she and the taxpayer met. While they were living together in the home, they refinanced the mortgage as co-borrowers. During 2010 and 2011, the taxpayer lived in the home, paid the mortgage payments, and maintained the property. On his 2010 federal income tax return the taxpayer claimed, among other credits and deductions, a $1,500 residential energy credit arising from the installation of energy-efficient windows and “other energy saving assets” in the property. When the IRS issued a notice of deficiency, one of the items it disallowed was the residential energy credit.

To substantiate the credit, the taxpayer provided an invoice from a local window company, issued to the taxpayer’s friend who also lived in the home. The invoice showed a “contract amount” of $11, 934, a “deposit” of $3,580, and “payments” of $8,354. It showed an “install date” of March 5, 2011.

The Tax Court found that the invoice was insufficient proof of the claimed credit, pointing to several shortcomings. First, it did not describe in any detail what sort of windows were installed. Second, it did not specify the property on which they were installed. Third, the taxpayer’s name was not on the invoice. Fourth, the invoice did not disclose who paid the deposit or who paid the payments. Fifth, and this is the clincher, the invoice stated that the windows were installed in 2011, but the taxpayer claimed the credit on his 2010 federal income tax return.

From time to time, I share my thoughts about the relationship between, on the one hand, road taxes and user fees, and on the other hand, the cost of death, injury, and property damage caused by potholes. I’ve explained the economic sense of collecting user fees to repair highways in posts such as Potholes: Poster Children for Why Tax Increases Save Money, When Tax Cuts Matter More Than Pothole Repair, Funding Pothole Repairs With Spending Cuts? Really?, Battle Over Highway Infrastructure Taxation Heats Up in Alabama, and When Tax and User Fee Increases Cost Less Than Tax Cuts and Tax Freezes.

Estimates vary in terms of what a motorist pays for automotive repairs required when someone runs over a pothole. The American Automobile Association uses a $600 figure, as noted in Analyzing Gasoline Tax Increase Impacts. Others suggest it’s twice that amount. It only takes one blown tire and bent tie rod for someone to learn, quickly, how expensive tires, wheels, suspension parts, and labor can be.

In a recent article, Cassie Hepler of phillyrecord.com explains that there are now more than 35,000 potholes in Philadelphia, an increase of more than 20,000 since four years previously. Before 2012, the city filled almost 13,000 potholes each year. It just can’t keep up. Worse, because potholes are more likely to appear when roads get older, the situation is compounded by the city’s inability to repave as many road miles as it needs to do in order to reduce pothole development. For more than ten years, the city has failed to pave the 131 miles that it sets as the goal to stymie pothole increases. In 2013, the city managed to repave all of 22 miles of roads.

The reason for this problem is easy to identify. The city’s highway budget has fallen from an annual average of $25 million to $18 million. The average cost to fill a pothole is $22. The Independent Insurance Agents and Brokers of America organization has calculated that potholes cause $5.4 billion a year in damage, and I don’t think that includes any sort of price for death and personal injury. Spreading the $5.4 billion over all drivers, the organization concluded that the average driver pays $20 a year because of pothole damage. Put another way, every ten years a motorist will be hit with a $200 repair bill. I think those numbers are low. But even using those numbers, does it not make more sense to pay $5 a year to provide enough funds to ensure that all potholes are fixed quickly and to repave roads so that the number of new potholes is reduced? It’s called insurance and it makes sense.

The anti-tax crowd and the anti-government groups argue that no one should be forced to pay taxes to fund roads or to buy insurance. In one sense, if someone wants to live without insurance, so be it, provided the consequences fall only on that person. Someone without health insurance can self-fund their own care, even though 99 percent of those who claim to self-fund their own care lack the financial resources to do so and end up getting free care at emergency rooms. In contrast, the person who resists fees for road repaving and pothole repairs is forcing other people to incur the risk of death and injury because they are compelling people to use roads that are inadequate.

Of course, lurking beneath the surface is the intent of those who want to privatize highways, so that they can charge ten or twenty or fifty times what it would cost if road taxes and user fees were increased. And when the private company fails to deliver, it and its officers and shareholders cannot be voted out of office. Beware of the profiteers taking advantage of the anti-tax and anti-government sentiments. As bad as public government can be at times, privateers are much worse.

A few months ago, in If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, I criticized a major league soccer ownership group for trying to get taxpayers in St. Louis and in Missouri to foot part of the bill for the construction of a soccer stadium. I explained that if the project is a good economic deal, then the owners should be more than happy to invest their own money. I explained that if the only way to make the private sector project economically viable is to grab taxpayer dollars, then the project isn’t worth doing. I pointed out that an attempt by the then St. Louis Rams of the National Football League to persuade taxpayer to fund a new stadium for the Rams had failed. I noted, “Apparently the message, that the taxpayers do not want to finance profitable private sector enterprises, did not get through to everyone.”

Now comes a news report that when the voters in St. Louis went to the polls earlier this month, they rejected one of the two ballot propositions that needed to be approved in order for public financing of the proposed soccer stadium to proceed. The proposition that passed is a half-cent increase in the sales tax. The proposition that failed was an increase in the use tax with the revenue dedicated to the construction of the stadium. The report explains that because the first proposition passed and the second failed, the use tax will increase but the revenue will go into the city’s general fund. Turnout for the vote was higher than expected.

Though this is good news, it’s just one small victory in the effort to put an end to wealthy business owners trying to take even more from the public than already is taken. Almost all taxpayers complain about taxes, their anger is deflected onto the truly needy, that deflection is part of an effort to hide where too many tax dollars go, and now, it appears that taxpayers are figuring out what has been happening. They think to themselves, “Some years ago, I voted for, or didn’t object to, a tax increase to fund a private business or a private business with a very visible public presence, like a professional sports arena. My wages didn’t increase, my unemployed friends continue to be unemployed, city and county services have been reduced, there are more potholes on the roads, and the owners of the businesses siphoning off tax dollars are wealthier than eve. Enough. No more. This time I’m going to vote, and I’m going to push the no button.” Sometimes education is a long, time-consuming process, but hope springs eternal.

There’s a man in Montana who is unhappy that the county treasurer has not cashed the check he wrote in November to pay his property tax bill. After waiting several months for the check to be cashed, Scott Dion, according to this report, retained a lawyer to help sort out the situation. The lawyer notified the treasurer that failure to cash the check violated the First Amendment, and ran afoul of two state laws, one requiring financial institutions to report the deposit of public money, and the other requiring county treasurers to keep a record of tax payments. The lawyer accused the county treasurer of official misconduct and suggested that the treasurer be prosecuted.

According to Dion, he writes something on the memo line of most of his checks. Earlier in 2016, he wrote “bulls—t” on the memo line of a tax payment check. He claims that the county treasurer have never failed to cash his checks in the past, despite whatever he had written.

But perhaps the reason things changed things is what he wrote this time. In the memo line, he wrote, “sexual favors.” Dion’s lawyer thinks that the county treasure was offended and thus decided not to cash the check. My guess is that the county treasurer is playing it safe. For example, according to a FatWallet forum discussion, putting “sexual favors” in the money line is not as unusual as one might expect. Though some bank tellers laugh and deposit the check, in one instance, according to a commenter, a bank teller refused to deposit the check because, he surmised, it was proof of an illegal activity. Perhaps that is why Dion’s check, according to the county treasurer, is in the hands of the county attorney. The county attorney’s only reaction is that there is no current civil or criminal case pending with respect to Dion’s check. But perhaps there will be, in the near future. According to this decade-old news story, Robert Militzer was ordered to appear in court after writing “bulls—t money grab” in the memo line of a check written to pay a $10 parking ticket. He faced thirty days in jail and a $250 contempt of court fine, but I am unable to determine what ended up happening in his case. There is a difference, though, because what Militzer wrote, and what Dion wrote on an earlier check, do not suggest the commission of a crime as does what Dion wrote on the November check

And here many of us thought that the biggest form-of-tax-payment challenge was the use of coins, as I discussed in Does It Make Tax Cents?, It Still Doesn’t Make Tax Cents, and Trying to Make Cents of Two More Coin Payment stories. It remains to be seen what happens with electronic funds transfers. I can hardly wait.

Seventeen months ago, in Taking and Giving Back, I wrote:

It’s a familiar story. A private sector business asks for special tax breaks and taxpayer funding for an enterprise that already is extremely profitable and that will continue to be profitable. The justification is that the business generates economic benefits for the public at large. Some of the most egregious instances of this money grab occur in the professional sports industry. I wrote about this eleven years ago in Tax Revenues and D.C. Baseball, and three years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public.

Though this happens more often than I write about it, from time to time it helps to remind people that “taking” isn’t confined to those who are the objects of the makers’ scorn.

A few days ago, a news report out of Cincinnati explained that that owners of U.S. Bank Arena need to upgrade their building. This development was sparked, apparently, by the ownership group’s successful bid to host the NCAA men’s basketball tournament. The kicker? The bid requires the city of Cincinnati and the county of Hamilton to provide some of the $350 million needed to do the upgrade. How much is desired by the owners has not been revealed by them, nor have they disclosed how much of their own money they plan to spend. Here’s some advice to the owners: Spend $350 million of your own money, or however much it costs to do the renovations. You can make it back through ticket sales, concession sales, parking fees, and television contracts.

Fortunately for the taxpayers of Cincinnati and of Hamilton County, their elected officials, perhaps keenly aware of public sentiment, have expressed deep reluctance about tossing public dollars into the begging baskets of wealthy arena owners. The fact that the city and country already committed nearly $1 billion to the not-so-poor owners of the city’s professional sports teams has something to do with that reluctance. One official explained that the county would be willing to help facilitate zoning and other regulatory issues, but doesn’t have money to dish out to the arena’s owners. Officials doubt the public would be willing to approve another tax or an increase in existing taxes. The city has a budget deficit, and the county expects a revenue decrease because of changes in state laws that reduce the number of items subject to the county sales tax. The city and the county do not want to increase an already sky-high 17.75 percent hotel tax. The owners of the arena don’t have any major sports tenants lined up, nor is it likely they could find one. They claim, however, that they don’t need one because “major concerts and events” could “bring hundreds of millions in dollars in economic activity to the region.” It’s the same old song, and it’s rather out of tune.

If the owners of U.S. Bank Arena cannot make it work using their own money, they can do what every middle-class would-be entrepreneur does when the economics don’t work. They abandon their plans, or close down the enterprise, and find another way to accomplish their goals. The wealthy think that they are entitled to financial contributions from everyone else because their activities allegedly benefit society. So, too, do the activities of the would-be entrepreneurs. If what any of those entrepreneurs, wealthy or middle-class, is doing provides the claimed societal benefits, the enterprise will flourish and will not need public support.

When a reader sent me an email directing my attention to this commentary I knew immediately that it was a foolish proposition that begged for a response. How did I know? The headline told me, “Let’s Make Tax Day a Month Earlier.”

The authors who came up with this idea relied on several general observations about behavior and on several specific bits of empirical evidence. First, they noted that 25 percent of people filing tax returns did so between April 1 and April 22, with 10 percent of taxpayers filing after the deadline. Second, they asked, “So why are people waiting to file?” They suggested several answers. First, those who delay are not expecting a refund. They questioned this explanation because 32 percent of tax refunds are distributed after April 1. Second, they considered the notion that people who wait until the last minute to file taxes don’t like free money, characterized that idea as absurd, and then noted that “this line of thinking is used by many business leaders and product managers. Using employer contributions to employee retirement plans as an example, they pointed to a change in employee retirement plan enrollment options that increased employee participation, and concluded that people have busy and complicated lives, and thus leave for tomorrow tasks that require more time and effort. Third, they pointed to another experiment involving zero-interest loan applications as support for the proposition that deadlines matter, and when a deadline is imposed, participation rates increase. Fourth, they relied on another study to support the claim that shortening a deadline increases participation. Fifth, they concluded that late filing could be eliminated by moving the deadline for filing individual Forms 1040 from April 15 to March 15, because most taxpayers receive their Forms W-2 and 1099 in January or February.

This commentary was published on a Scientific American blog, so I am going to take this suggestion apart using scientific methods. Specifically, I will examine facts and law.

First, anyone who understand tax law knows the answer to “Why are people waiting for file?” The answer is, “It depends.” It depends on the person and the person’s situation. Yes, there are procrastinators, especially those who file after the deadline. They don’t file late because the deadline is April 15 rather than March 15. They file late because they are psychologically insensitive to time. Many people have had the experience of advancing the time for meetings in an effort to get late-comers to show up on time. Yet the late-comers still manage to be late. Most people, however, who file in April do so because they do not yet have the information required to file the return. Though they do get the information in time to avoid filing for an extension of time in which to file, there simply is no way for them to file by March 15. Why? They are waiting for Schedules K-1 from partnerships, LLCs, and S corporations. They are waiting for information from trusts and estates.

Second, although 32 percent of refunds are distributed after April 1, a good-sized chunk of those refunds are generated from returns filed in March. Refund checks aren’t mailed, and direct deposit refunds are not posted, on the day that a return is filed or even on the day it reaches the IRS. Even with a March 15 deadline, refund checks would continue to arrive as late as May.

Third, changing the deadline to March 15 for those folks who have all the information they need by the end of February does nothing for the people who do not. Under this deadline change, there would be a huge increase in the number of taxpayers filing extension of time to file returns.

Fourth, not everyone received all of their Forms 1099 by the end of February? Why? Because Forms 1099 coming from brokerages and mutual funds, for example, cannot be issued until the brokerage or mutual fund receives the information it needs to generate the information on customers’ Forms 1099.

Fifth, changing the deadline to March 15 for those folks who have all the information they need by the end of February would compress tax return preparation into a two-week period at the beginning of March that would swamp tax return preparers. Deadlines need to reflect the amount of time required to perform a task, the amount of material and information that needs to be collected, and the workload on those facing the deadline. There is a huge difference between a theoretical proposition and practical reality.

Sixth, trying to accelerate the receipt of Forms 1099 and Schedules K-1 by accelerating the dates by which those items must be distributed would require, in turn, acceleration of the processes that lead up to the distribution of those items. For example, full implementation of the “Make Tax Day a Month Earlier” proposal would require partnerships to file their returns before they had time to close their books and do the accounting for the calendar year that just closed. I’m confident brokerages would agree that accelerating the due dates for Forms 1099 would require them to undertake tasks that would not only be burdensome but downright impossible.

Seventh, anyone who has the required information for their tax return and who wants to file early can do so under current law. If people want to wait, so be it. It’s no loss to the rest of us. In fact, it provides the rest of us another month of interest-free use of the money that does not get sent as a refund until April or May. Advancing the deadline will not reduce the number of people who procrastinate because they are oblivious to calendars and clocks. It will, however, require people to invest time and effort in filing extensions of time to file.

Eight, the only reason this “Make Tax Day a Month Earlier” proposal doesn’t win the prize for being the most impractical tax filing deadline change idea is that another one, made years ago, continues to be absolutely mind-boggling. More than thirty years ago, Representative George Gekas proposed requiring taxpayers to file their tax returns during the month in which their birthdays occurred. He explained that he was trying to spread IRS processing work over the year, and defended the birthday concept because it give people an easy way to remember when their tax returns were due. To avoid the absurdity of requiring January babies to file by January 31, he conceded that people born during the first four months of the year would have an April 15 deadline. So much for an easy way to remember when tax returns would be due. The IRS informed Gekas that it has already surveyed taxpayers, tax return preparers, and IRS agents on the question of staggered filing schedules, and the idea had failed miserably. The adverse collateral consequences were another problem, including disruption of training and hiring, and the financial cost of keeping seasonal employees on a full-year basis. Though Gekas claimed to have support for his idea in the House Ways and Means Committee, it went nowhere. And that is where the “Make Tax Day a Month Earlier” proposal will go, unless the federal tax system is radically changed in ways that eliminate taxes.

Six years ago, in Why Teaching Isn’t Just a Matter of What One Knows or Understands, and in a follow-up post four years later, Still Puzzled Four Years After Conviction to File Income Tax Returns, I wrote about the disappointing saga of a member of the faculty of the Hamline University School of Law who failed to file Minnesota income tax returns, and who eventually was convicted. Now comes a report that a member of the economics faculty at the University of Minnesota has been charged with failure to pay Minnesota state income taxes and with failure to file state income tax returns. My first thought was that withholding ought to cover the taxes due on her $160,000 teaching salary and that perhaps she had other income for which she should have been making estimated tax payments. Of course, that doesn’t excuse the alleged failure to file returns. It turns out that somehow, the university withheld very little from her pay, and my guess is that she claimed multiple exemptions to push down the withholding. Though she has not filed returns and paid her full tax bill since 2003, the statute of limitations prevents the state from reaching back beyond 2010.

The state sent more than 40 letters to the taxpayer at her university office, but she did not respond. When Department of Revenue officers searched her home, office, and automobile, they found the letters. Apparently, when being interviewed five months ago, she admitted that she knew she needed to pay taxes and file returns, but that she had not received any letters. She claimed that she thought her withholding was sufficient to meet her tax liabilities. She also admitted that when she lived in Philadelphia she had been subjected to a tax audit.

According to another report, the taxpayer claimed excess withholding allowances, and received unreported taxable distributions from a pension plan. A person who is employed full-time sometimes can collect on a pension plan from a previous employment that permits retirement at an age younger than the typical 65. Whether that was the case in this instance is unclear. Department of Revenue investigators also discovered that she had purchased a condominium but eventually the mortgagee foreclosed on it. Credit card receipts showed expenditures in the thousands on “travel, restaurants, grocery stores, liquor, and wineries.”

Investigators also found 60 letters from the IRS and the Philadelphia Department of Revenue. Whether those organizations have proceeded or are proceeding to bring criminal charges is not known at this time.

The taxpayer’s university profile suggests the taxpayer is intelligent, educated, and accomplished. It appears that the failure to file tax returns and to pay taxes is not a question of comprehension but a consequence of some deeper issue. There surely is more to this story, and it is possible that additional information will be forthcoming.

Sometimes it’s not enough to produce some evidence to support a taxpayer’s claim for an exclusion, deduction, or credit. Sometimes it’s not enough to produce what the taxpayer has or knows. Sometimes it is necessary to find and produce evidence of what others have or know. This challenge is illustrated by what happened to the taxpayer in Jenkins v. Comr., T.C. Summ. Op. 2017-22.

The taxpayer claimed a dependency exemption deduction, a child tax credit, an earned income credit, and head of household filing status based on his position that a minor child was his qualifying child or his qualifying relative. The taxpayer and the child’s mother had never married. The child’s mother had full physical custody. The taxpayer had visitation rights one day per week, every other weekend, approximately seven holidays, two weeks in each of July and August, and some additional overnight weekend visits.

The taxpayer provided evidence that the child spent 150 days with him during the taxable year. The court concluded that, absent any other evidence, the child must have spent the other 215 days with his mother. Thus, the child did not have the same principal place of abode as did the taxpayer for more than one-half of the taxable year. Thus, the child was not the taxpayer’s qualifying child.

The taxpayer also provided evidence that he paid at least $2,999 for the child’s support during the year. However, there was no evidence of how much the child’s mother paid for the child’s support. Thus, the taxpayer failed to show that he provided more than one-half of the child’s support during the year. Thus, the child was not the taxpayer’s qualifying relative.

As a result, the taxpayer’s claim for claimed a dependency exemption deduction, a child tax credit, an earned income credit, and head of household filing status based on his position that a minor child was his qualifying child or his qualifying relative was rejected. What could the taxpayer have done?

It appears that there is nothing the taxpayer could have produced as evidence to show that the child was his qualifying child. With the child spending only 150 days with the taxpayer, there is no way that the 183 day minimum could be proven. On the other hand, though it is unlikely that the child’s mother spent less than $2,999 on the child, if that was in fact the case, proving it would be essential to the taxpayer’s position that the child was his qualifying relative. The practical problem is simple to describe. How does the taxpayer obtain information from the child’s mother to show what the child’s mother spent? Depending on how, or whether, the taxpayer and the child’s mother get along, the taxpayer is pretty much at the mercy of the child’s mother. That puts the taxpayer in a difficult position. A remedy, seemingly fair, would be to require the mother to produce that evidence in support of her claims with respect to the child. That, however, is yet another example of how the tax law becomes more complicated.

At the beginning of the month, in And Now It’s California Facing the Road Funding Tax Issues, I described the California proposal to raise revenue to fix its crumbling highway infrastructure. The proposal was enacted shortly thereafter. The legislation raises gasoline taxes for the first time in more than twenty years, increases car registration fees, and imposes a fee on emission-free vehicles. I pointed out that the plan was meeting with resistance, particularly because in the past, transportation revenues have been diverted to other uses, and that the proposal deals with this concern by including an amendment to the state Constitution to prevent this sort of fund diversion.

Now comes news that the host of a conservative talk radio show has decided to undertake a recall campaign against the state senator who is sponsoring the Constitutional amendment to use transportation-based taxes only for transportation and the proposal to raise necessary revenues. The talk show host asked, “We have $100 billion for high speed rail but need $50 billion for roads?” He then answered his own question, “How about we cancel high speed rail and put savings into our roads?” Well, Mr. Talk Show Host, without high speed rail, vehicle traffic will increase even more, causing even more wear and tear on highways, and thus causing even more of an increase in the funds needed to protect the lives and property of California residents and visitors to the state.

A motorist who spends $100 several times a week on fuel for his truck offered this insight: “I hope they take it down. Do something. There's plenty other places to tax other than gas.” This motorist, however, did not offer any ideas. I suppose he thinks that people who buy milk should be taxed to pay for the damage his driving does to the highways of California? Or perhaps the tax should be imposed on wheelchairs and walkers? The anti-tax crowd that is nurtured and instigated by the anti-tax talk show radio hosts doesn’t want to tax anything. That takes us back to the point I made several days ago in If Users Don’t Pay, Who Should?, after reading that two-thirds of Americans don’t think that road users should pay for road maintenance and repairs. I asked, “Then who should pay? Leprechauns? Unicorns? Fairy godmothers? Mommy and daddy? Santa Claus?” And I answered, “To me, it’s simple. You use the road, you pay. You pay an amount that reflects the wear and tear that you impose on the transportation infrastructure. Those who use the road and don’t pay a fair share are takers, plain and simple.”

Last week, CNN reprinted a report from Motley Fool with the attention grabbing headline, “4 things the IRS doesn't want you to know." The introduction to the story explained:

It's the IRS's job to collect taxes for the federal government, so it's not surprising that most people are less than fond of the agency.
The IRS, in turn, does its best to keep certain facts under wraps -- either because it would make it easier for the agency if people don't know these details, or because taxpayers can use this information to get some of their money back .

The commentary then listed and described four supposed secrets, including for example, “You probably won’t be audited.” That’s not news to anyone who’s been paying attention.

It was the third item that caught my eye. Under the tag line “Qualified charitable distributions in lieu of RMDs,” the report explained, “Once you hit age 70½, the IRS requires you to withdraw a certain minimum amount from your tax-deferred retirement accounts every year. It doesn't want you to be able to hang on to that money forever; after a certain point, it wants to be able to start collecting taxes on the money in these accounts.” That’s not correct, it’s inaccurate, it’s imprecise, it’s misleading, and it contributes to the antipathy Americans hold for the IRS. Do you know who imposed the “begin distributions by age 70.5” rule? Here’s a hint. The answer is the same as the answer to the question, Do you know who “doesn’t want you to be able to hang on to that money forever?” Here’s another hint. The answer to those two questions is the same as the answer to the question, Do you know who “wants to be able to start collecting taxes on the money in these accounts?” The answer is not a three-letter acronym or a three-word phrase. It’s one word. Congress.

Yes, it is Congress that enacts the tax laws. It is Congress that determines what is and is not deductible. It is Congress that establishes tax rates. It is Congress that requires taxpayers to file tax returns. It is Congress that establishes credits. And it is Congress that does such a wonderful job of fooling Americans into thinking that the Internal Revenue Service is responsible for these things.

The inability to identify those responsible for a law or regulation that a person does not like guarantees that the person’s attempt to change things will be misdirected. Asking the IRS to let the beginning of retirement plan distributions wait until age 75 is like asking a police officer to eliminate the stop sign at the end of the neighborhood street. The police officer didn’t put the sign there, nor enact the ordinance establishing a stop sign at the intersection. Misdirected requests, misdirected complaints, and misdirected anger are useless. The solution is education, learning who is responsible for what, who it is that is making someone do something. I wonder how many millions of readers went away from that article thinking, or reinforcing already formed thoughts, that the IRS is responsible for the “begin distributions by age 70.5” rule. I wonder how many member of Congress are chuckling, and congratulating each other on once again duping America.

As readers of this blog know, I am a strong supporter of mileage-based road fees. I have written about the mileage-based road fee many times, beginning with Tax Meets Technology on the Road, and continuing through Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, and And Now It’s California Facing the Road Funding Tax Issues. I support the mileage-based road fee because I think that, where possible, users of services should pay for those services, and those who, for good reason, are unable to pay for essential services should receive assistance in receiving those services.

A reader directed my attention to a study that was released about six months ago. In a press release describing the study, Indiana University explained that, according to a survey of 2,000 Americans, mileage user fees were opposed by a four-to-one ratio. Support would increase if GPS tracking was not part of the measurement system. At least 23 states are studying the mileage-based road fee, but it remains to be seen how many states enact such a system.

The problem, though, isn’t so much a switch from fuel taxes to a mileage-based road fee. The problem is deeper and symptomatic of one of the deep problems afflicting this nation. According to the survey, ”two-thirds of Americans do not believe roads should be financed under the user-pays principle, whether that’s through a fuel tax or mileage fee.” Are they kidding? Then who should pay? Leprechauns? Unicorns? Fairy godmothers? Mommy and daddy? Santa Claus?

The sense of entitlement to getting something for nothing is a serious problem. The deeper problem is that many of those who complain the most loudly and the most frequently about “takers” and “freeloaders” are themselves immersed in their own sort of taking and entitlement. To me, it’s simple. You use the road, you pay. You pay an amount that reflects the wear and tear that you impose on the transportation infrastructure. Those who use the road and don’t pay a fair share are takers, plain and simple.

Last month, in So What Would YOU Do to Avoid Taxes?, I shared and commented on a new Survey from Wallet Hub, which revealed what people would be willing to do to avoid paying taxes in the future. The choice with the most votes, though coming in only at 20 percent, was getting an “IRS” tattoo. You would not find me selecting that option, nor the option of not talking for six months.

These surveys are fun, and so it’s not surprising that a GOBankingRates survey has polled people with the same question. The choices, though, were different. Almost one-third of the respondents would be willing to perform five karaoke songs for their company, an action that the survey’s headline writers tagged as an “embarrassing stunt.” First, considering that at least one-third of people sing well enough to avoid being embarrassed when singing in public, it very well could be that those selecting this option know that they can do at least a creditable job of crooning for their co-workers. Second, even if someone isn’t all that good of a singer, but especially if they are, singing is surely a very inexpensive price to pay for being relieved of tax liability.

The second most popular option was giving up WiFi for a year. Senior citizens were the most willing to give up WiFi, perhaps because for some, it’s easy to give up something one doesn’t use. If giving up WiFi does not include giving up one’s cable connection to the internet, this again becomes a rather low price to pay for escaping tax liability.

Only 5 percent would surrender half of their retirement savings. Certainly, those with very little tucked away would be giving up not much to avoid taxes. According to the survey, people aged 35-44 years were more than three times more likely to select this option that those aged 25-34. That is a bit surprising, because it seems that the older group would have more retirement savings and thus would be paying a relatively higher price to escape taxes.

It was surprising to learn that more members of Generation X would be willing to have their internet browsing history made public, as a price to pay for avoiding taxes, than would senior citizens. That certainly cuts against stereotypes.

Though these survey questions, and the responses, are interesting and even amusing, they are theoretical. The choices are not an equivalent trade-off for government revenue. I wonder what would happen if people were given a chance to reduce or eliminate their tax liabilities in exchange for doing work on public projects, such as filling potholes, cleaning parks, and painting government buildings. Perhaps the next survey will ask questions of that sort.

Names matter. We encounter names everywhere. Though occasionally a name strikes us as unusual, or noteworthy, usually we take names for granted. Everyone has a name.

But sometimes, even though names matter, a person doesn’t have a name. I encountered this phenomenon in two different contexts during the same day last week. In one instance, someone posted an inquiry to a genealogy web site, asking why someone’s name on a birth certificate would simply be “baby.” Others replied that sometimes parents had not yet agreed on a name, and that the birth certificate would be updated at a later time. In the other instance, I noticed a story about the Georgia Department of Health refusing to issue a birth certificate for a newborn because the Department did not approve of the name chosen for the child. Without getting into the question of whether the Department’s action is justified, a point made by the story’s author caught my eye. The author correctly noted that by not having a name, and thus no birth certificate, the child cannot obtain a social security number. If the child does not have a social security number, the child’s parents will face huge, and perhaps insurmountable hurdles, getting the child insured, getting the child enrolled in school, and getting the child a passport.

What the story’s author did not mention was something that naturally popped into my head, which still has tax things wandering around in it. If the child does not have a social security number, the parents cannot claim the child as a dependent on their federal income tax return, nor on their Georgia income tax return. Eventually, if the dispute with the Department of Health is resolved quickly enough, the parents will need to file amended returns for those taxable years for which their unnamed child did not have a social security number.

Names matter. Even for tax purposes.

It’s the time of the year when states examine highways and bridges, evaluate the damage caused by winter weather, usage, and deterioration caused by aging, and realize that, yes, repairs are necessary. Though the extent of repairs can vary from state to state, in part because of differences in the harshness of winter weather, determining that none of a state’s highways and bridges need repairs just doesn’t happen.

California, according to several reports, including this one, needs $52 billion to fix its roads. The governor and some legislators are rallying behind a proposal to raise gasoline taxes for the first time in more than twenty years, increase car registration fees, and impose a fee on emission-free vehicles. The plan is meeting with resistance, particularly because in the past, transportation revenues have been diverted to other uses. That happens in many states, and it’s not just transportation revenues that are diverted from their intended purpose. The advocates of this most recent proposal in California have also proposed an amendment to the state Constitution to prevent this sort of fund diversion.

If anyone in California has suggested the mileage-based road fee as a source of funding, it hasn’t become public. Eventually, as transportation technology evolves, that fee is the most likely replacement for taxes that will cease to work because, for example, the decline in gasoline sales will eviscerate the gasoline tax base. I have written about the mileage-based road fee many times, beginning with Tax Meets Technology on the Road, and continuing through Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, and What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?

The California proposal represents a shift in the direction of highway funding for several reasons. The fee on emission-free vehicles, which are not subject to the gasoline tax because they don’t use gasoline, acknowledges that emission-free vehicles contribute to the wear-and-tear on public highways. The scaling of the registration fees based on a vehicle’s value is a step in the direction of scaling the fee based on weight. Generally, heavier vehicles have a higher value, though the correlation isn’t very strong.

California’s governor made a point that I’ve been making for years. He explained that, under the plan, most drivers would pay less than an addition $10 each month, and that they would benefit from reduced vehicle repair expenses. It continues to puzzle me that so many citizens object to small tax or fee increases that will reduce or eliminate huge repair bills caused by highways in disrepair. In some respects, paying for highway repairs is good insurance against paying even higher amounts for vehicle repairs, but in recent months it has become painfully obvious that many Americans do not understand what insurance is, how it works, and why it makes sense.

One drawback to the proposal is that it does not appear to raise enough funding. California needs $59 billion to fix existing problems on state highways, and its local governments collectively need $78 billion to fix local roads. It doesn’t seem that $52 billion will make enough of a dent in that backlog, especially while the list of required repairs continues to grow each month.

It is unclear whether the proposal will pass. Even if it does, it will take years before the risk of vehicle damage, accidents, injuries, and deaths attributable to damaged highways begins to recede. For some, it will be too late.

There is no question that supply-side-based tax policy, and its related “trickle down” theory, do not work. They cause far more problems than the difficulties they allegedly were designed to fix.

One of the best examples of how trickle-down supply-side tax policy is a total failure is the Kansas experience. I have written about the terrible outcome in that state on several occasions. In A Tax Policy Turn-Around?, I explained how the Kansas income tax cuts for the wealthy backfired, causing the rich to get richer, the economy to stagnate, public services to falter, and the majority of Kansans to end up worse than they had been. In A New Play in the Make-the-Rich-Richer Game Plan, I described how Kansas politicians have been struggling to find a way to undo the damage caused by those ill-advised tax cuts for the wealthy. In When a Tax Theory Fails: Own Up or Make Excuses?, I pointed out that the Kansas experienced removed all doubt that the theory is shameful. In Do Tax Cuts for the Wealthy Create Jobs?, I described recent data showing that the rate of job creation in Kansas was one-fifth the rate in Missouri, a state that did not subscribe to the outlandish tax cuts for the wealthy that Kansas legislators had embraced. In Kansas Trickle-Down Failures Continue to Flood the State and The Kansas Trickle-Down Tax Theory Failure Has Consequences, I described how large decreases in tax revenue, the opposite of what is promised by the supply-side theorists, triggered cuts in public education, and in turn stoked the fires of voter frustration. The voter reaction, however, did not push out of office enough supply-side supporters. In Who Pays the Price for Trickle-Down Tax Policy Failures?, I described how the governor of Kansas, who claimed that tax cuts for the wealthy would generate increased revenues, proposed to deal with the resulting revenue shortfall by cutting spending for essential services.

Yet, despite the unquestionable failure of his state’s foray into the world of trickle-down supply-side tax policy, the governor of Kansas actually recommended that what he did in Kansas be used as the template for federal tax reform, as reported in this article. Does it make sense to take reading lessons from illiterate people?

Now comes a report that the Kansas policy of cutting taxes for the wealthy with the unwarranted promise of resulting revenue increases and economic prosperity is on the verge of total collapse. Brownback, a Republican, has watched a Republican-controlled Kansas legislature come close to dumping his economic and tax policies. Many expect that the next state budget will put those policies to rest. The state, facing a huge budget deficit, has exhausted short-term tweaks and borrowing capacity, and must choose between undoing the tax cuts or pretty much terminating education funding. The latter approach would face court challenges likely to succeed. Not unlike the situation in the nation’s capital, centrist Republicans find themselves in disagreement with the extreme conservative Republicans who support Brownback. One Republican state senator has described Brownback’s tax and economic legacy as “going down in flames.” Yet Brownback thinks his failure is a role model for the nation.

Brownback, not surprisingly, places the blame elsewhere. He attributes the state’s economic mess to oil price declines and reductions in crop prices. Though claiming that his policy of cutting taxes for the wealthy created new businesses and jobs, job growth in Kansas last year was worse than all but five states. The practice of assigning blame to others rather than admitting a mistake seems to be a popular approach among certain segments of the political world. Interestingly, the Republican-controlled Kansas House voted to restore teacher tenure and expand Medicaid, and if that bill passes it would undo two other Brownback policies the results of which have not fared well with the people who voted Brownback and his legislative allies into office some years ago.

Kansas indeed is a role model for national tax policy, but it’s not the lesson Brownback wants to teach. What the Congress needs to understand from the Kansas fiasco is that supply-side trickle-down tax and economic policies do not work. If Congress wants to learn what works, it can examine states where demand-side policies have been enacted and have worked. Otherwise, as a Republican legislator warned, economic failure makes voters angry, and when voters get angry, they “go to the polls and get rid of you.” That, too, is a lesson.

A recent United States Tax Court case, Gaines v. Comr., T.C. Summ. Op. 2017-15, provides some insight into claiming a charitable contribution deduction for donating clothing to a charity. The taxpayers were a married couple, but the issues involved the transactions of the wife. She worked as a independent contractor in the foster care industry, and also worked in the women’s clothing department of Saks Fifth Avenue and Neiman Marcus. The taxpayers’ income tax return included a Schedule A, Itemized Deductions, and a Form 8283, Noncash Charitable Contributions. On the Schedule A, the taxpayers claimed an $18,000 charitable contribution deduction for gifts other than cash on the Schedule A. The Form 8283 indicated that the deduction was attributable to clothing donations made to “Goodwill”. At trial the wife testified that the
deduction related to donations of clothing that were made to a church that might or might not be still in existence. The IRS disallowed the deduction.

The Tax Court agreed with the IRS. The court pointed out that the taxpayers had not complied with any of the requirements applicable to deductions of $5,000 or more for property other than cash. The taxpayers did not explain the discrepancy between the donee identified on Form 8283, “Goodwill,” and the wife’s testimony that the donee was a church. The taxpayers did not provided details as to the number of specific items donated or the value of any specific item. They did not present any written substantiation for the deduction, nor could the wife recall how the value of the items was calculated.

What especially struck me, though the court did not elaborate on the point, was the amount of the deduction. Used clothing, unless it is something once owned by a celebrity, is like a used car. Its value diminishes from the moment it is purchased, and continues to do so as it is worn. Though the court did not disclose the taxpayers’ total income, the facts permit a guess that it wasn’t particularly huge. It seems plausible that the cost of $18,000 of used clothing would be in the range of $50,000 to $100,000. That’s a lot of clothing. I wonder if the clothing was purchased by the wife as an employee of Saks Fifth Avenue and Neiman Marcus at a deeply discounted price, and that she computed the donation by using the retail price of the clothing. The retail price surely exceeded the employee price, and surely exceed the value of the clothing after it was taken home and used.

If the amount of clothing donated to a charity is so massive that it has a five-digit value, or the clothing includes items remarkable for having been owned by a celebrity or a similar reason and thus has a five-digit value or more, it certainly makes sense to spring for an appraisal. The cost of the appraisal is but a fraction of the tax savings generated by the charitable contribution deduction.

The Philadelphia soda tax remains controversial, and hasn’t started off very well. The controversy has accompanied it since its proposal, as I’ve described in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, and The Imperfections of the Philadelphia Soda Tax.

The tax, in place now for two months after years of disagreement, has fallen short of what it needs to generate in revenue. In When Tax Revenues Are Better Than Expected But Less Than Required, I discussed the significance of the city’s report on the tax for January. The city has committed to spending $91 million annually from soda tax revenues. That requires an average of $7.58 million per month in tax collections. In January, the city collected only $5.7 million. A bit of arithmetic reveals that to reach $91 million for the year, the average monthly collection for the remaining 11 months needs to be $7.75 million per month. A few days ago, according to this report, the city announced that it collected $6.4 million. Though more than what was collected in January, it is still below the required average monthly collection. A bit more of arithmetic reveals that to reach $91 million for the year, the average monthly collection for the remaining 10 months needs to be $7.89 million per month. Each month that the revenues fall short, the target for the remaining months of the year increases.

According to the report, the city needs to increase its monthly totals to $7.7 million beginning in April. I don’t see how that would bring the total to $91 million unless somehow the city brought in $9.6 million in March or succeeds in bringing in $7 million of unpaid taxes. It’s unclear whether the unpaid taxes are amounts collected by distributors and not remitted, or amounts that the city thinks should have been collected and that might not actually be due. The city also suggests that holidays and weather affect collections, so perhaps the city is banking on a beverage buying spree come summertime. Unfortunately for the city, stories and anecdotes suggest that the buying spree might take place outside of the city limits.

My conclusion in When Tax Revenues Are Better Than Expected But Less Than Required is no less a concern:

All of this, of course, is tentative, because the challenge to the tax is on appeal in Commonwealth Court. What happens if it is struck down? Spending money that the city might be required to refund is unwise, as I discussed in Gambling With Tax Revenue. And even if the city prevails, it still appears to be a huge gamble, considering the likelihood of revenues falling short of $91 million.

It is going to be interesting tracking these monthly reports as 2017 progresses.

Hawaii has a problem. According to this report, its State Highway Fund is $100 million short of what is needed to keep its highways in functional condition. Of course, Hawaii is not alone when it comes to highway funding. Almost every state is facing the same problem, with the amount of the shortfall varying from state to state.

So the Hawaii legislature is considering ideas to fix the problem. Its Senate Transportation Committee has opted for an increase in the fuel tax. Another proposal is to replace the current weight tax with a tax based on the value of the vehicle. The weight tax rests on the principle that heavier vehicles cause more damage to highways and bridges than do lighter vehicles, and thus the heavier vehicles should pay a higher tax. Proponents of a shift to a value-based tax simply explain that it would generate more revenue. Clearly, some higher-value vehicles do more damage to roads, but there isn’t that strong of a correlation between a vehicle’s value and its weight, or between its value and the wear and tear it puts on roads.

There is another option. Readers of this blog know what it is. The legislators in Hawaii, working with the state’s Department of Transportation, should consider the mileage-based road fee. I have written about this approach many times, beginning with Tax Meets Technology on the Road, and continuing through Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, and To Test The Mileage-Based Road Fee, There Needs to Be a Test. Surely a state caught between higher fuel taxes and arguments about vehicle weight and value would find merit in an idea that takes the best of the weight-based tax and blends it with another measure of wear and tear, vehicle mileage. But I’m not holding my breath.

Though from time to time I find material for this blog when I watch television court shows, there are far more shows and episodes than I’ve had an opportunity to view. A reader sent me a link to an episode of Judge Faith, a show that I have not seen, which involved a dispute between two former friends. One friend had prepared the other friend’s tax return, but the second friend refused to pay the bill.

The judge concluded that the second friend owed the first one the return preparation fee. There was a contract between the two friends, which required the second friend to pay by a certain date or when her tax refund was received. The refund check did not show up, and it turned out that it had been stolen and cashed in another city. The IRS opened an investigation that was still underway at the time of the case in question. The second friend argued that she did not owe the tax return preparation fee because she had not received the refund. The judge explained that under the contract, receipt of the refund was one of two payment requirements. Because the specified date had passed, the fee was due.

But the best part of the case was the revelation at the outset by the first friend. The plaintiff opened her case by saying, “I’m a tax preparer and I’m an adult entertainer. So I dance full time and I do taxes seasonally.” The judge replied, “You have no problem counting those dollar bills is what you’re telling me.” The plaintiff rejoined, “Oh, I count money very well.”

Many people are seasonal tax return preparers. Some are retired. Most have other jobs. Many of those with other jobs are accountants, and some are lawyers. I wonder how many seasonal tax return preparers who have other jobs, when asked to describe their other job, would reply, “adult entertainer.” It surely is an interesting combination. I suggest not asking your tax return preparer what he or she does in the off-season.

One of the key ingredients of tax law practice is the ability to parse statutes. As I tell my students, sometimes the answer is in the statute, and if it isn’t, the statute should guide the analytical path to an answer, if there is one.

One aspect of interpreting a statute, tax or otherwise, is punctuation. One type of punctuation that matters is the comma. For years, writers, grammarians, lawyers, and others have debated the use of the so-called “Oxford comma.” The Oxford comma is used to separate the next-to-list item in a list. For example, one could write, “I gave the instructions to Bob, Mary, Rachel and Tony.” Proponents of the Oxford comma argue that the sentence should be, “I gave instructions to Bob, Mary, Rachel, and Tony.” In this instance, with or without the Oxford comma, a reader can easily determine that the instructions were given to four people. But sometimes the absence of the Oxford comma can make a difference in meaning.

Recently, in O’Connor et al v. Oakhurst Dairy et al, the United States Court of Appeals decided that the absence of an Oxford comma in a statute was the critical element of its decision. The case involved a dispute between a diary company and its drivers over the drivers’ rights to overtime pay. Under Maine law, which governed the employment relationship, overtime pay generally is required if the employee works more than 40 hours in a week. Among the exceptions to this requirement is Exemption F, which states that overtime pay protection does not apply to “The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.

The drivers argued that these words refer to the single activity of “packing,” whether the “packing” is for “shipment” or for “distribution.” The drivers explained that though they handle perishable foods, they do not engage in “packing” them. Thus, the drivers contended that they were not within the Exemption F exception.

The dairy argued that the statute refers to two distinct exempt activities, one being “packing for shipment” and the other being “distribution.” Under this interpretation the drivers are within the Exemption F exception because they unquestionably distribute perishable foods.

When the case was filed in the district court, it was referred to a Magistrate Judge, who decided that the dairy’s argument was the better one, and recommended granting the dairy’s motion for partial summary judgment. The district court agreed, and granted summary judgment for the dairy on the ground that “distribution” was a stand-alone exempt activity. The drivers appealed.

The Court of Appeals began by setting aside an unpublished opinion of the Maine Superior Court cited by the dairy. The Maine Superior Court had ruled that Exemption F provides an exemption “for the distribution of the three categories of foods.” The federal Court of Appeals pointed out that it is not bound by a Maine Superior Court decision because a Maine Superior Court decision does not bind the Maine Law Court. The Court of Appeals also noted that the cited case had been appealed to the Maine Law Court, which did not follow the Superior Court’s approach but decided the case on other grounds.

The Court of Appeals concluded that Exemption F was ambiguous, even after taking account of interpretive aids, the law’s purpose, and the law’s legislative history. The dairy argued that the words “distribution” and “shipment” are synonyms, that accordingly “distribution” is not a type of “packing,” and that “shipment” describes the exempt activity of “packing” whereas “distribution” is a separate exempt activity. The dairy also relied on the linguistic convention of using a conjunction to mark the last item on a list, and thus argued the lack of a conjunction before “packing” made “distribution” a separate item. The dairy conceded that if a comma had been placed after the word “shipment,” its interpretation would be unquestionable, but tried to block the conclusion that the lack of the comma required the opposite outcome by pointing out a rule in the Maine Legislative Drafting Manual that stated, “when drafting Maine law or rules, don’t use a comma between the penultimate and the last item in a series.”

The drivers argued that “shipment” and “distribution” are separate activities. They explained that “shipment” refers to outsourcing delivery to third-party carriers, and “distribution” refers to a seller’s in-house transportation of products to recipients, relying on dictionary definitions. The Court of Appeals noted that if the dairy was correct in treating “shipment” and “distribution” as synonyms, it would be odd for the legislature to use both terms. Additionally, the court noted that in other statutes, the Maine legislature treated “shipment” and “distribution” as different activities. Thus, using both terms was consistent with an exemption for “packing for shipment” and “packing for distribution.” The drivers also argued that because each exempt activity was described by using a gerund – a word ending in “ing” – the use of “shipment” and “distribution” should be treated as having the same grammatical role under the parallel usage convention. Thus, the drivers concluded, those two words are objects of the preposition “for” that follows the gerund “packing.” The drivers responded to the dairy’s reliance on the Maine drafting manual by highlighting a caution in the manual that drafters should “be careful if an item in the series is modified.”

After explaining why the arguments based on grammar did not resolve the matter, the Court of Appeals proceeded to explain why the arguments based on legislative history did not provide an answer. The court turned to the principle of interpreting a statute in favor of those whom the statute is intended to protect. In this instance, it was intended to protect employees. Accordingly, the Court of Appeals held that the drivers were not within the overtime requirement exception, and reversed the district court.

The lesson is simple. Had a comma been placed after the word “shipment,” the dairy would have prevailed. Though the dispute between advocates of the Oxford comma and those who do not subscribe to it will continue, it is clear that using the comma can provide clarification that its absence cannot offer. Those who draft statutes, regulations, rulings, contracts, or any other document need to pay very careful attention to each word and each punctuation mark, including the comma. The cost of a missing Oxford comma can be steep.