Esoteric TP related paper

[Imalawman]

Prof. Crane, my law professor for advanced corporate tax has issued a very interesting article titled "Reclaiming the meaning of 'Direct Tax'". LPC, I thought you might especially like it. Its esoteric, but not too bad. In any event, here's the http://papers.ssrn.com/sol3/papers.cfm? ... id=1553230

[teaser]Reclaiming the Meaning of “Direct Tax”
What is a “direct tax”? Congress has done nothing that has raised this constitutional question in almost a century. But the fact that the question has not been raised does not mean that it never again will be. If Congress wants to abandon the current income tax and chooses a replacement that is a “direct tax” but not an “income tax,” the new tax must be apportioned among the states according to population.1 This constitutional formula would require not only that taxes paid be attributed to particular taxpayers who are identified with particular states, but also that the relative amounts of tax attributed to each state be the same as the relative populations of the states.[/teaser]

[Prof]

Since I haven't looked at the article, does he suggest that a national sales tax would be a direct tax, but not an income tax, so that such would have to be apportioned? Could the US argue that the tax apportions "automatically"?

Interesting constitutional issue, I think.

[Imalawman]

Since I haven't looked at the article, does he suggest that a national sales tax would be a direct tax, but not an income tax, so that such would have to be apportioned? Could the US argue that the tax apportions "automatically"?

Interesting constitutional issue, I think.

Among other things, yes. I need to get all the way through myself. I plan on taking it home with me and reading it tonight. But its very interesting so far and I think will prove invaluable in responding to TPs claims regarding direct taxation.

btw - Charlotte Crane - Northwestern Law, so "she", not "he"....

[Cpt Banjo]

Although there is some unfortunate dictum in the Supreme Court's Nicol case (see below) that a sales tax is a direct tax, it's not likely that the Court would so hold today. In dealing with a tax on transactions effected at a mercantile exchange, the Court stated in passing,

A tax upon the privilege of selling property at the exchange, and of thus using the facilities there offered in accomplishing the sale, differs radically from a tax upon every sale made in any place. The latter tax is really and practically upon property. It takes no notice of any kind of privilege or facility, and the fact of a sale is alone regarded. Although not created by government, this privilege or facility in effecting a sale at an exchange is so distinct and definite in its character, and constitutes so clear and plain a difference from a sale elsewhere, as to create a reasonable and substantial ground for classification and for taxation when wimilar sales at other places are untaxed. A sale at an exchange differs from a sale made at a man's private office or on his farm, or by a partnership, because, although the subject- matter of the sale may be the same in each case, there are at an exchange certain advantages, in the way of finding a market, obtaining a price, the saving of time, and in the security of payment, and other matters, which are more easily obtained there than at an office or upon a farm. To accomplish a sale at one's farm or house or office might, and probably would, occupy a great deal of time, in finding a customer, bringing him to the spot, and agreeing on a price. All this can be done at an exchange in the very shortest time, and at the least inconvenience. The market is there, and all that is necessary is to send the commodity. Although a sale is the result in each case, and the thing sold may be of the same kind, the difference exists in the means and facilities for accomplishing such sale; and those means and facilities there is no reason for saying may not be taxed, unless all sales are taxed, whether the facilities be used or not. Nicol v. Ames, 173 U. S. 509, 521 (1899)

The idea that a tax upon the sale of property (wherever it may be accomplished) is the same as a tax on the property being sold and is therefore a direct tax, would be untenable today in light of the cases decided since Nicol. If a tax on a gratuitous transfer of property is an excise (which the Court said it was in upholding the constitutionality of the gift tax in 1929), it's hard to see how a tax on a transfer for consideration would be treated any differently.