National Tax Association September 29, 2006

Five Key Things Non-Lawyers Should Know About Tax Law and Its Policy Implications

 Walter Hellerstein

Francis Shackelford Professor of TaxationUniversity of Georgia Law School

 

Overview “No Taxation Without Representation”

Is Not a Rule of Law Every Tax That Is Unfair Is Not

Unconstitutional A Tax Is Not an Assessment of Benefits One Person’s State Tax Incentive Is

Another Person’s Discriminatory Tax You Owe a Tax on Things You Buy

Regardless of Where You Buy Them

“No Taxation Without Representation” Is Not

A Rule of Law Residence and Source Bases for

Taxation Residence-based Taxation Without

Representation Political Principle

Source-based Taxation Without Representation Discrimination concerns Administrative concerns

Every Tax That Is Unfair Is Not Unconstitutional

Federal Constitutional Restraints Are Limited Limitations on Federal Taxing Power

Exports, “Direct” Taxes, Geographical Uniformity, Due Process

Limitations on State and Local Taxing Power Equality and Uniformity Extraterritoriality Burdens on Commerce Interference with Federal Supremacy

Finer Tuning Must Come From Legislative Branch

A Tax Is NotAn Assessment of Benefits

Any Other View Would Undermine View That Government Exists to Provide for Common Good

A Tax Is the Means of Distributing the Burden of the Cost of Government

Taxpayers Generally Have No Right to Any Specific Quid Pro Quo for Taxes Paid

Whether a Tax Should Be Designed as an Assessment of Benefits Is a Different Question

One Person’s State Tax Incentive Is Another Person’s Discriminatory

Tax

Reduced tax on stock transfers to encourage trading on New York exchanges

Boston Stock Exchange v. State Tax Commission, 429 U.S. 318 (1984)

Tax exemption for pineapple wine to encourage fledgling Hawaii wine industry

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)

Income tax credit for machinery and equipment to encourage new investment in Ohio

Cuno v. DaimlerChrysler, Inc ., 386 F.3d 738 (6th Cir. 2004), reversed on

other grounds, 126 S. Ct. 1854 (2006) Key Policy Questions:

Who should draw the line: courts or Congress? Where should the line be drawn?

You Owe a Tax on Things You Buy Regardless of Where

You Buy Them

Consumption Should Be Taxed Where Consumption Occurs

Value Added Taxes and Retail Sales/Use Taxes Levy Tax on Goods on Destination Basis

Legal Liability at Destination Is Indisputable Key Practical Question Is Enforceability Key Policy Issues:

Fairness and Efficiency versus Administrability OECD, EU, and U.S. Subnational Initiatives