Monday, December 30, 2019
Knowing my interest in government reactions to people’s attempts to pay taxes with coins, when reader Morris spotted this story, he forwarded the link to me. He knows I’m going to write something about this one.
The story begins when Cynthia Lockett, who lives in Jackson Country, Missouri, received her 2019 real property tax assessment. The value of her land was increased by 135 percent, her house by somewhat less, so that her overall assessment rose 45 percent. It’s not clear whether that is a one-year change, though I think not, or an adjustment to reflect years of unadjusted assessments. It’s probably the latter, and probably similar to what is happening in many counties in Pennsylvania.
Lockett, though, considered the increase to be “unfair and illegal” as well as “egregious and ridiculous,” and made “multiple phone calls to multiple people at the country.” She filed an appeal. As of the time the story was written, her appeal had not yet been processed. Locket was frustrated at being ignored.
So Lockett decided to pay her real property taxes with nickels. She chose to submit nickels rolled in coin wrappers rather than merely in piles, because she wasn’t “trying to be a complete jerk.” To pay her bill she needed 1,419 rolls of nickels. How much do 1,419 rolls of nickels weigh? According to the article, 625 pounds. Wow.
Lockett’s plans made the news and came to the attention of the county’s Collections Department. Its director sent Lockett a letter. The director explained that country policy, as authorized by state law, is to refuse “large payments made using coins.” The reason? “Payments of this type would require a significant amount of staff time to process, which would result in substantial increases to wait times for other taxpayers. Accepting payments of this type would prevent us from providing adequate customer service to the many other taxpayers seeking assistance in making their payments.”
Lockett’s response to reporters was simple. She said, “I think it's interesting that they can find the time to respond to this, but they can't respond to the egregious bills and ridiculous assessments that they are sending us.”
But the catch is that the county’s Collections Department is separate from its Assessment Department. The employees of the Collections Department are powerless to deal with Lockett’s objections to the increased assessment, and they have no authority to deal with her assessment appeal.
According to the story, there may be a reason Lockett did not get responses from the Assessment Department. The county – though it is unclear what is meant by “the county” – requested access to the email account of the Board of Equalization staff, which does the assessments. The Assessment Department, in complying with that request, discovered 8,600 unread emails. Whether Lockett’s email was in that batch is unclear.
So what happened? Was the account password known to only one employee who died or became seriously ill? Were the employees newly hired and unaware of the email account? Who was in charge? What was happening in the office? These sorts of situations do nothing but supply fuel to the anti-tax and anti-government movements. It’s counterproductive.
As for Lockett, she has backed off her plans to pay with nickels, pans to pay the property tax by the deadline, but has no intention of paying by check. Will she use quarters? Half-dollars? Bitcoin? Gold bars? Time will tell.
Friday, December 27, 2019
According to this Deseret News article, somehow the valuation of a property for real estate tax purposes was entered incorrectly. The value of a property worth roughly $300,000 was entered into the valuation roles in excess of $1 billion. Yes, that’s $1,000,000,000. Not $300,000. They’re calling it a clerical error.
Once that amount was entered, the county, school district, and other taxing entities in the county computed estimated revenues and set real property tax rates. The error increased county property values by 21 percent over the previous year. That change did not raise eyebrows because the county is in a period of rapid growth, coming in as the third-fastest-growing county in the state.
Months later, the county assessor, Maureen Griffiths, noticed the error. Apparently she doesn’t know how the error happened, and suggested that it could be “something like they dropped their phone on the keyboard and it kicked out all these numbers without verifying.” She called the mistake “horrific,” “bizarre,” and “crazy.” She caught the error when looking at a list of “top 25” real estate tax taxpayers and saw a number totally out of line with the usual amounts.
Oddly, the property owner, who lives in another state, was unaware of the error. They learned of the error after the assessor contacted them, and told them about the error and that it had been fixed.
But, as the article mentions, by then it was too late for the correction to make a difference for the county. Budgets had already been adopted, and real estate tax bills had already been sent. Because of the correction, the school district cannot collect $4.4 million in revenues that it expected to be collected from the property owner. When adding in amounts that the other taxing entities cannot collect, the revenue shortfall is more than $6 million. The director of Utah’s State Tax Commission Property Tax Division says that the scope of this error has no precedent in the state.
County officials “ ‘deeply regret’ the error, and are reviewing policies and procedures to ensure it never happens again.” They also are warning that rates almost certainly will increase in future years to make up the revenue that was budgeted but uncollectible yet already committed to expenditures. The county manager, though, stated, “An abnormality of almost $1 billion is a big deal, and it should have been caught. There are checks in place that it should have been looked at. We will modify those in the future and do a better job.” So is the issue a matter of policies and procedures or a matter of noncompliance, carelessness, or inattentiveness?
If nothing else, perhaps this story will encourage property owners to check valuation notices when they arrive in the mail. If I received a valuation notice pegging my property at $1 billion, I’d be on the phone within seconds. And I’d be following up until it was corrected.
Wednesday, December 25, 2019
This year, it is the Congress of the United States that is playing the Christmas gift tease game. The House of Representatives, as reported in many stories, including this one from the Philadelphia Inquirer has voted to repeal the $10,000 cap on the deduction of state and local taxes.
The $10,000 cap, of course, was marketed as a token offset to the massive tax cuts enacted two years ago in favor of large corporations and the wealthy. Yet because large corporations don’t itemize deductions, and because the wealthy find ways of shifting their expenditures into a variety of tax-saving structures, the $10,000 cap has fallen mostly on the middle-class, particularly the middle and upper middle class. In many instances the loss of tax benefits from the state and local tax deduction was not offset by the miniscule tax cuts afforded to the same groups, particularly when other middle class tax deprivations enacted in 2017 are taken into account.
But the other half of the Congress, the Senate, has no intention whatsoever of letting the House bill become law. Hopefully no one who reads the news about the House action gets too excited about Christmas-time tax relief. Unlike what happened in A Christmas Carol, no ghosts of tax law past or tax law future will show up in the dreams of those who are indebted to, enamored of, or subservient to, the tax policy nonsense that has given us repeated enactments of tax cut gifts for a few while everyone else is expected to believe that those drowning in gifts will share their largesse. Put another way, Tax Santa Claus isn’t bringing a state and local tax deduction cap repeal down anyone’s chimney this year. Despite that, if today is a special day that matters to you, Merry Christmas!
Monday, December 23, 2019
I had several reactions. First, it is doubtful that the increased IRS funding will make much of a change in the audit statistics, and surely those funds will not cause the audit rate, for example, to double. Second, the benchmarks for selecting returns for audit include a long list of things in addition to high income and typos. Certain types of transactions, such as vacation home deductions, are of more interest to the IRS. Third, the notion that an audit can be avoided or prevented makes no sense. The best that taxpayers can do is to reduce the chances of an audit. True, those chances can be reduced to almost zero, but they cannot be reduced to zero.
So the answer to my question is clear and easy. No, IRS audits cannot be avoided, and the best that a taxpayer can do is to follow advice to reduce the risk of an audit to as low as possible.
Friday, December 20, 2019
The basic point of the article is that sometimes, perhaps often, it makes more sense to donate unwanted household and other items to a qualified charity rather than trying to sell these things at a garage or yard sale. The tax savings from the deduction for donating property to charity can, in many instances, exceed the amount of cash one receives from a buyer at the garage or yard sale. Another advantage from donating the items to a charity is that it is easier to box up the items and deliver them, or have them picked up, rather than advertising, setting out items on tables, pricing them, tagging them, dealing with potential customers, making change, safeguarding cash, and then cleaning up when the sale is finished, with unsold items still needing to be handled.
The article claims that to determine the reduction in tax liability attributable to the charitable contribution, a taxpayer should multiply the amount of the deduction by the taxpayers’ “effective tax rate.” This is wrong, as reader Morris suggested. The value of the charitable contribution deduction is determined by multiplying it by the marginal rate, keeping in mind that the marginal rate can be a split rate if the deduction causes the taxpayer’s taxable income to slip out of one bracket into a lower one. Technically, because of other interactions in computing taxes (such as the charitable contribution deduction making itemized deductions a better choice than the standard deduction), the best way to calculate the tax savings is to compute tax liability without the deduction and then to compute tax liability with the deduction. The difference is the tax savings attributable to the deduction.
When I read the article, I also spotted another claim. The article asserts that, “On the plus side, the proceeds from a garage sale are not taxable,” and quotes a CPA as saying, “Garage sales are considered the sale of personal property, and you do not have to claim the money you received from the sale.” That is so not true. Though most items sold at a garage or yard sale generate a loss, because they bring in less, and often much less, than what the seller paid for the item, there are times when an item fetches a price greater than what the seller paid. Though the losses are usually not deductible because the item is not a business or investment property, the gains are included in gross income. The notion that sales of personal property are not taxed is not one for which there is statutory authority in the Internal Revenue Code.
From scanning more than a few websites that make similar claims, though with different articulations, it appears that the true statement, “You generally are not required to report sales of items at garage or yard sales” gets smooshed into the misleading statement, “You are not required to report sales of items at garage or yard sales.” The loss of the word “generally” is critical. Why does it disappear? Twitter-type character limits? Preferences for short sound bites? Unwillingness to follow through with questions prompted by the word “generally”? Misunderstanding? Whatever the cause, it creates a misleading claim that can be dangerous when it causes someone to fail to report gain from selling an item at a garage or yard sale.
Wednesday, December 18, 2019
So in this Judge Jerry episode, the plaintiff and defendant were in a relationship but broke up. The plaintiff arranged to have her tax refund deposited into the defendant’s bank account because the plaintiff did not have a bank account. The plaintiff was no longer in touch with the defendant except when she contacted the defendant after getting a notice, presumably from the IRS, that her tax refund had been deposited into the defendant’s bank account.
In response, the defendant paid the plaintiff an amount equal to a portion of the refund. The defendant explained that she used the rest of the refund to buy clothing for her daughter, arguing that the daughter is the daughter of both the plaintiff and the defendant. Putting that issues aside, Judge Jerry stated, “It is the plaintiff’s money.” The defendant replied to the judge, “I don’t care.” Judge Jerry held that the defendant owed the balance of the refund to the plaintiff.
It is unclear how the plaintiff managed to have the tax refund deposited into the defendant’s bank account. The instructions to Form 1040 have, since 2015, made it clear that the name on the bank account must match the name of the taxpayer. Perhaps the plaintiff or defendant did something to circumvent that rule. The exception, that the refund is from a joint tax return and is being deposited into a joint account had no relevance in the case because the plaintiff and defendant had never been married to each other.
The instructions to Form 1040 also refer to refunds deposited to prepaid debit cards. She also could have received a paper check, though perhaps cashing it would have presented a challenge because she did not have a bank account. But as difficult as that might have been, surely it would have been less inconvenient that having to sue the defendant. There is a lesson here, namely, don’t try to deposit a tax refund in someone else’s account, though in theory an attempt to do so should be rejected by the IRS. I suspect there was more happening between the plaintiff and defendant than was revealed in Judge Jerry’s courtroom.
Monday, December 16, 2019
Though most people would consider a toll to be a fee, some people call it a tax. Though sometimes whether it is a fee or a tax doesn’t matter, such as when a business is adding up expenses, in other instances it matters very much. An example is the recent case of American Trucking Associations, Inc. v. Alviti, decided by the United States Court of Appeals for the First Circuit on December 5, 2019. The court put it succinctly: “This appeal poses the question whether bridge and highway tolls authorized by a Rhode Island statute are taxes within the meaning of the Tax Injunction Act ("TIA").” Rhode Island enacted a bridge toll, and the plaintiffs, mostly trucking companies and trucking associations, sued to enjoin implementation of the toll, arguing that it violated the Commerce Clause of the United States Constitution.
Under the Tax Injunction Act, “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." Thus, if the toll is not a tax, the Tax Injunction Act does not prevent the district court from hearing and deciding the plaintiffs’ challenge.
The Court of Appeals relied on a definition provided in Thomas Cooley’s treatise, The Law of Taxation, which has been cited multiple times by courts as authoritative on the question of whether a toll is a tax. The Court of Appeals quoted from the edition of the treatise extant in 1937 when the Tax Injunction Act was enacted:
A toll is a sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like, of a public nature. The term toll, in its application to the law of taxation, is nearly obsolete. It was formerly applied to duties on imports and exports; but tolls, as now understood, are applied most exclusively to charges for permission to pass over a bridge, road or ferry owned by the person imposing them. Tolls are not taxes. A tax is a demand of sovereignty; a toll is a demand of proprietorship.Thus, the Court concluded that the Rhode Island toll is not a tax. Relying principally on an early Supreme Court decision involving tolls on river locks owned by Illinois, it also rejected Rhode Island’s argument that a toll is a tax if the infrastructure for which the toll is charged is owned by the state rather than by a private enterprise on whose behalf the state collects the toll.
Based on its conclusion, the Court of Appeals reversed the district court’s decision that it lacked jurisdiction to hear and decide the case. It remanded the case for further proceedings. Those proceedings will focus on the Commerce Clause issue and not on whether the toll is a tax. The lesson from this decision is that calling something a tax that is not a tax is not a pathway to success, a point I have repeatedly made in my commentaries about fees and taxes.
Friday, December 13, 2019
John Fulgenzi asks why they are being subjected to a parking tax even though they pay an income tax and a property tax. That, I think, is not a question that focuses on the problem. As Reeder puts it, “The state is taxing parking to pay for non-transportation related infrastructure.” To me, the question should be, “Why are the revenues from a parking tax being used for expenditures that have nothing to do with parking?” If the parking tax revenues were used to inspect parking spaces for safety, to maintain parking spaces, or otherwise to benefit parking, or even related transportation infrastructure such as curbs and streets, John Fulgenzi’s question could easily be answered. But the answer to the actual question, “Why are the revenues from a parking tax being used for expenditures that have nothing to do with parking?” is, according to Reeder is simple. “The reason is straightforward. They are counting on your ignorance. Their sincere hope is that you will blame the parking lot owners for your higher rates, rather than the lawmakers who imposed the tax on them.” Indeed.
Tim Butler, one of the state legislators who supported enactment of the tax, and who represents the Fulgenzi’s town, claims that “it never was the intent of lawmakers to tax people like the Fulgenzis.” He adds, “The idea behind this was to tax those big parking garages in downtown Chicago. I wanted to make sure it didn’t tax municipal parking garages in Springfield, but it never occurred to anyone that it might affect parking near the state fair.” Sorry, Tim Butler, if that’s what the legislature intended, then it should have drafted language to that effect. But it didn’t.
There are two problems with this tax. One, as just noted, is the inconsistency between the alleged legislative intent and the language of the statute. That problem is widespread among legislatures. The other is the enactment of a tax on an activity that is not used to benefit that activity.
It is difficult to defend this tax. What is worse is that the enactment of this sort of tax encourages a backlash against taxes in general, including taxes that are easily defended. Legislatures need to do better. Much better.
Wednesday, December 11, 2019
The gist of Schroder’s position is that non-residents of Philadelphia, whether living elsewhere in Pennsylvania or in another state, bring their lawsuits in Philadelphia because Philadelphia juries, he explains, provide higher awards than juries do elsewhere. Whether this is true doesn’t matter for purposes of the question raised by reader Morris. Schroder relies on findings by the U.S. Chamber Institute for Legal Reform, which concluded, as Schroder tells it, “the total cost of the ‘tort’ or personal injury side of the court systems in the U.S. is $429 billion, representing 2.3% of the gross national product,” and “Pennsylvania’s tort system equates to $18.374 billion or 2.5% of Pennsylvania’s gross domestic product.” For the average Pennsylvanian, Schroder states, the “cost of Pennsylvania’s tort system amounts to $3,721 per household in the state.” Again, whether this is true doesn’t matter for purposes of the question raised by reader Morris. It simply sets the stage for Schroder’s next claim.
Schroder claims that the burden imposed on Pennsylvania households by its tort systems “is essentially an extra ‘tort tax’ paid by every household in the state to prop up an inefficient system of civil justice.” No, it is not a tax.
So why does Schroder use the word “tax” in making his argument? He does so for the same reason many other people use the word “tax” to describe something that is not a tax. Schroder’s target is the civil justice system, specifically, tort cases and high jury awards for plaintiffs. Some will agree and some will disagree with his position, reflecting a debate that is decades old. But in order to win over the uncommitted, Schroder adopts a tactic that has become increasingly used by others who advocate against a particular policy, system, charge, or plan. Find a way to call something a “tax.” Knowing that many people will immediately join in the opposition, because the word ignites their limbic systems, opponents of a charge are becoming ever more eager to call it a tax. Telling people they are being overtaxed generates a much more significant and intense reaction than telling them they are being overcharged.
The problem with dividing tort judgments by households and calling the result a tax is that the same approach could be taken with respect to any charge. This is why so many “fees” get tagged as “taxes” by their opponents, and I suppose there are people who would pin the word “tax” on alimony, doctors’ bills, and invoices for computer software.
Perhaps some of those who toss the word “tax” around indiscriminately would argue that they use the term, not for every charge, but for every involuntary charge. Yet that argument omits the critical aspect of what constitutes a “tax.” An involuntary charge imposed by a government is a tax or fee, but an involuntary charge imposed by a private sector actor is not a tax. It might be a fee, or a charge, or a cost, or a price, or an expense, but it’s not a tax.
At least Schroder put the term “tort tax” inside quotation marks, but nonetheless using the word “tax” in this manner will go viral, particularly among the unschooled, who will conclude, probably beyond persuasion to the contrary, that their taxes have been raised, and government needs to be dismantled. Unfortunately, as we edge closer to the dismantling of government, a process well underway in certain capitals, we move closer to rule by oligarchy, which does not impose taxes but fees, charges, costs, prices, and expenses, at least as involuntary as those dreaded taxes. Whereas the ballot box, though also under attack by those preferring rule by oligarchs, provides an arena to push back against taxes, there is no avenue to push back against fees and other impositions charged by the private sector. That is why misuse of the word “tax” helps batter down the protections government offers against rapacious privateers.
Monday, December 09, 2019
Unfortunately for the life coach, this approach does not spare her the obligation of filing tax forms. Reader Morris commented, “I believe the life coach would need to report the course fees as gross income on her tax return and report the donations to the organization as charitable deductions. She would still need to spend time keeping the books, filing tax forms and the details of running a business.” Reader Morris is correct. The life coach has constructive receipt of the fees. There are many tax cases involving taxpayers who directed someone to pay a third party rather than the taxpayer. The courts consistently conclude that a transfer from A to C directed by B, who wants to benefit C in some way or who owes money to C is treated as a transfer from A to B, and then from B to C. In this instance, B is the life coach, A is her client, and C is the charity.
Friday, December 06, 2019
In Tax versus Fee: The Difference Can Matter, I wrote about Oklahoma legislators who were arguing about a “fee” on cigarettes. Opponents claimed it was invalid because it originated in the Senate. This is what I wrote:
Oklahoma has enacted a new $1.50 per-pack “fee” on cigarettes. This action comes on the heels of four previous failures to increase the state per-pack cigarette tax by $1.50. Opponents have sued, asking the Oklahoma Supreme Court to invalidate the legislation. They argue that the fee originated in the state Senate, thus violating the requirement in the state Constitution that revenue-raising legislation originate in the state House. The opponents also argue that enactment of the legislation during the last week of the legislative session violated the state Constitution’s requirement that revenue-raising legislation not be enacted during the last five days of a legislative session. The opponents also argue that proponents of the $1.50 charge were trying to characterize the legislation as not revenue-raising by labeling it a fee. The opponents explain that the fee “simply reincarnated the earlier cigarette tax bills under a new name.”That court decision did appear later that year. According to this article, the Oklahoma Supreme Court struck down the fee for the reasons put forth by the opponents of the fee.
Though I’m no expert in Oklahoma constitutional law, it seems to me that the fee raises revenue, and thus has been enacted in revenue-raising legislation. Accordingly, the process by which it was enacted appears to have violated the Oklahoma Constitution. If, for some reason, the Oklahoma Supreme Court determines that the provisions in the constitution applies to taxes but not fees, then deciding whether the $1.50 charge is a tax or fee would be determinative. The label alone should not resolve the question. The state is not selling cigarettes to people, nor is it selling licenses to use tobacco, and thus it is difficult to characterize the charge as a fee. It would not be surprising if the Oklahoma Supreme Court, if it were to limit the requirements in the state Constitution to taxes, decided that this particular charge was a tax. It will be interesting to see what the court decides, probably sometime later this year.
Now the issue has arisen again, this time in Massachusetts. In this editorial column, Howie Carr objects to a “transportation climate initiative fee,” also called a “carbon fee,” for a variety of reasons. He asserts that the fee is, in fact, a tax. He dislikes the idea of a tax being disguised as a fee. He claims that the supporters of the fee are trying to avoid a requirement in the Massachusetts Constitution that new state taxes must originate in the House of Representatives. Though he has other objections to the proposal, I think that on this point he can relax. Under the Massachusetts Constitution, “All money bills shall originate in the house of representatives; but the senate may propose or concur with amendments, as on other bills.” In 1878, in Opinion of the Justices to the Senate and House of Representatives, the Massachusetts Supreme Court, addressing whether bills proposing the spending of money must originate in the House of Representatives, stated, “[W]e are of opinion that the exclusive constitutional privilege of the House of Representatives to originate money bills is limited to bills that transfer money or property from the people to the State, and does not include bills that appropriate money from the Treasury of the Commonwealth to particular uses of the government, or bestow it upon individuals or corporations.” So it seems to me, even though I’m not and expert in Massachusetts constitutional law, that whether the amount charged by the state is called a tax, a fee, or something else, if it causes money or property to be transferred from people to the state, it must originate in the House of Representatives. In other words, calling it a fee does not eliminate that requirement, and if that is what the proponents of the fee think they would accomplish, as Howie Carr suggests they are thinking, they are wrong, and Howie can relax on this point. He might want to take a look at what happened in Oklahoma with respect to the cigarette fee. He should find it encouraging.
Wednesday, December 04, 2019
Last week, reader Morris emailed me with an observation. He directed my attention to the review of a play, Death Tax, put on last month at Midwestern State University in Wichita Falls, Texas. The review outlines the plot as follows:
Maxine, an elderly patient in a nursing home is convinced that her daughter is trying to kill her. She claims that if a new tax law passes in the new year, Maxine’s daughter will get substantially less money from her mother’s death. Maxine is convinced that her nurse Tina is getting bribed to slowly kill her.Reader Morris noted, “This play and book seems to be based on an idea from your blog.”
Tina, a Haitian nurse who is struggling to fight a custody battle back home, is not trying to kill Maxine, but when Maxine offers a huge sum of money under the table to keep her alive it’s too good to pass up and she quickly becomes tangled in a web of deceptions.
Tina goes to her supervisor and one-time fling, Todd, for help. Trying to win Tina back, he’s forced to bribe other nurses and pay for expensive treatments out-of-pocket to keep Maxine ticking. He hopes that once Tina gets her son back, they can start a new life together.
Well, maybe. It could be based on Nedland Williams’ commentary. It could be based on similar commentary from someone else that I haven’t seen. Perhaps the author of the book overheard someone discussing my or Williams’ commentary. In any event, isn’t it fun that a tax issue finds attention in a theater? It depends, I suppose, on how a person defines fun.
Monday, December 02, 2019
The confusion becomes extremely precise when both the word “tax” and the word “fee” is used to describe the same charge. Reader Morris shared with me his bewilderment at the use of both terms in this article, describing issues arising from the passage of Initiative 976. The headline refers to “car-tab taxes.” The body of the article uses the same term but also refers to the charge as “car-tab fees.” So what are they?
It turns out that the confusion is attributable to the scope of Initiative 976. As described in this overview, that initiative was intended to reduce both taxes and fees. Washington imposed license fees on vehicles, base vehicle taxes, local Transportation Benefit District fees, electric vehicle fees, certain motor vehicle excise taxes, and other “taxes and fees” related to transportation. Car tab fees, as in effect before the initiative was adopted, included standard vehicle fees, which included a renewal fee, a county filing fee, a license service fee, and a service fee, along with a vehicle weight fee and transportation benefit district fees. They also paid motor vehicle excise taxes and an electric vehicle tax.
Apparently, with this bundling of fees and taxes leaves some people referring to them as car-tab fees, other referring to them as car-tab taxes, and still others referring to them by both terms, as seen in the article. Technically, the bundle should be called “car-tab fees and taxes,” but perhaps that’s too long for some people’s comfort.
If there is anything to be learned from this, perhaps it is the need to do away with multiple fees and taxes and to consolidate them into a much shorter list. The chances of that happening are about the same as the chances of cable companies and telephone companies consolidating the plethora of fees that they include in their invoices.