Another Battle in the Spanish-American War?

Posted on August 9, 2009 by Russ

Remember the Maine? That was the battle cry for the Spanish-American War. That war was fought in 1898 and was funded by an excise tax on a then luxury, telephone service.

Move forward 90 years. The excise tax was still being collected, but now it was also collected on long distance service and other telecommunications devices such as cellular phones. Business entities began to challenge the tax.

Let’s move forward again, now to 2006. The IRS has lost battles challenging the tax in thirteen federal appeals courts. The IRS folds their hand, and announces that refunds will be given out in 2007 (with the filing of your 2006 tax returns). And you (and your businesses) likely filed claims for the refunds, and you received them a couple of years ago.

But not everyone was happy with the IRS’ procedure to get the refunds. A Milwaukee tax consultant, Neiland Cohen, EA, didn’t like the IRS’ procedure and decided to sue the agency under the Administrative Procedures Act (APA). The District Court dismissed his claims. However, the DC Circuit last week ruled on Mr. Cohen’s appeal, and the case has been reinstated.

Here is an excerpt from the decision:

[T]he IRS still has the chutzpah to chide taxpayers for failing to intuit that neither the agency’s express instructions nor the warning on its forms should be taken seriously. According to the IRS, taxpayers should have realized all the options the Service said were closed to them—using forms that proclaim their inapplicability in bold letter or filing informal claims that could not be perfected—were nonetheless sufficient to fulfill their administrative refund obligations and to serve as a prerequisite to judicial review. Not hardly. Taxpayers bear a heavy burden when pursuing refund claims, but we have yet to demand clairvoyance. …

In sum, the IRS unlawfully expropriated billions of dollars from taxpayers, conceded the illegitimacy of its actions, and developed a mandatory process as the sole avenue by which the agency would consider refunding its ill-gotten gains. It cannot avoid judicial review of that process by simply designating it a policy statement. Notice 2006-50 constituted a final agency action that aggrieved taxpayers by hindering their access to court. Accordingly, we reverse the district court and remand Appellants’ APA claims for further consideration. …

I’d expect the IRS to appeal this case to the Supreme Court. However, even if the IRS loses Mr. Cohen faces a long battle. He still must prove his claims in District Court, and then likely face appeals on those claims. Still, it’s nice to see arbitrariness at the IRS slapped down by the Courts.

Hat Tip: TaxProf Blog
News Coverage: Bloomberg

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Las Vegas 2, Sacramento 0

Posted on August 9, 2009 by Russ

The Nevada Development Authority is Southern Nevada’s government agency that attempts to draw new businesses to the Las Vegas area. They’ve got a new campaign aimed at California.

Why? Well, the California Legislature is making the NDA’s job easy. Here’s one advertisement:

Interestingly enough, KABC-TV (Channel 7 here) will not air the television advertisements developed by the NDA. As this article notes, KABC’s decision will likely draw more publicity to the campaign.

There’s an easy way for California to fight this, though. Lower taxes, cut regulations, and make businesses want to be in the Golden State. Unfortunately, I suspect that will happen when pigs can actually fly.

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Catching Up on the Past

Posted on August 6, 2009 by Russ

We’ve got some catching up to do. A few miscreants that we reported on have recently reappeared in the news, so here goes.

First, our 2008 Tax Offender of the Year, Robert Beale, had his appeal heard earlier this year. It didn’t take long for Mr. Beale’s conviction of tax evasion to be upheld. Mr. Beale first alleged that the income tax doesn’t apply to citizens of the United States. From the Appeals Court: “Beale is not the first to attempt to escape his tax obligations with this type of argument, and his arguments fare as poorly as those of his predecessors.”

Mr. Beale then tried to argue that the judge should have recused herself. Of course, Mr. Beale managed to also get convicted for attempting to “arrest” the judge. The Appeals Court was having none of that:

Furthermore, Beale’s intent to manipulate the judicial system was clearly expressed when he was recorded saying that after he had intimidated the presiding judge, “no judge in the whole Court will have anything to do with me.” Complaint ¶ 5, Beale, No. 0:08-cr-00210-RSWJJK. Remanding for a new trial with a different judge would be an undue reward for an attempt to cow the entire federal bench into submission.

Mr. Beale will get to enjoy ClubFed for a few more years. (Hat Tip: Roth Tax Updates)

Meanwhile, we reported on the saga of Kent Hovind, the former evangelist and owner of Dinosaur Adventure Land (no, we’re not making that up) a couple of years ago. Mr. Hovind was convicted on 58 tax counts and I wondered, at the time, whether or not the government would soon own Dinosaur Adventure Land. Well, the government now can sell off the theme park and other properties that Mr. Hovind owned so that it can recover the money owed to the Treasury. No, Dinosaur Adventure Land won’t be reopening but the land will likely go to good use.

Finally, the case of Tennessee’s Crack Tax is done (at least, for now). The Tennessee Supreme Court ruled 3-2 that the tax is unconstitutional, upholding a lower court ruling. Peter Pappas writes that the law could be reconstituted by the Tennessee legislature but we’ll wait and see what happens.

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Dust in the Wind

Posted on August 5, 2009 by Russ

I appear to have returned from my vacation full of classic rock. Tonight’s selection is Kansas’ Dust in the Wind. Here’s an excerpt:

[Now] Don’t hang on, nothing lasts forever but the earth and sky
It slips away, and all your money won’t another minute buy.

Dust in the wind, all we are is dust in the wind
Dust in the wind, everything is dust in the wind.

I chose that particular selection because that’s what California has as a budget: Dust in the wind.

Bill Leonard says that the new budget features a structural deficit of anywhere between $8 and $26 billion. Hmmm, that sounds familiar. It’s another budget filled with one-time fixes and gimmicks. Yes, it’s signed into law and the IOUs will vanish…but only temporarily. There’s no chance that revenues for the remainder of 2009 will meet projections, and the legislators in Sacramento will have to be called back for the third time in 2009 to fix the budget.

What must be done is simple: Cut, cut, cut. Like it or not, expenses will need to be pared to match revenues. If you think Californians are for tax increases in the middle of a recession, I’ve got a bridge (actually, several) to sell you.

Here’s a link to listen to Kansas performing Dust in the Wind.

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Welcome to the Hotel California

Posted on August 4, 2009 by Russ

The Eagles song Hotel California remains a classic rock hit. During my recent vacation I walked through a Hotel California—the California Hotel and Casino in downtown Las Vegas.

The California has a Hawaiian theme, and the hotel is popular with tourists from the island state. But that might not last; Governor Lingle signed legislation making gambling losses not deductible on Hawaiians’ state tax returns.

The Hawaii Department of Revenue estimated the tax (I’ll call it by its real name rather than an elimination of an itemized deduction) could bring in $300,000 to the Aloha State. It won’t. As I’ve said before, taxes never bring in what they’re projected to because individuals modify their behavior to avoid the tax. There will be a lot fewer Hawaii tax returns filed that show gambling winnings for 2009.

And yes, the law is retroactive to January 1st. State Representative Pono Chong sponsored the legislation; he told the Honolulu Advertiser that the tax is “…a way to bring in additional revenue at a time when the state is ‘undergoing a significant and possibly protracted economic downturn in tandem with the national and global economic and financial crises.'” I guess the idea of cutting state spending is anathema to Hawaiian legislators.

For the California Hotel they may have to change their theme or attract a different customer base. Otherwise the lyrics that the Eagles wrote may become true:

Welcome to the Hotel California
Such a lovely place
Such a lovely face
Plenty of room at the hotel California
Any time of year, you can find it here

Posted in Gambling, Hawaii | 1 Comment

Vacation

Posted on July 23, 2009 by Russ

It’s time for my annual vacation. I’ll be back on Tuesday, August 4th. While on vacation I may post if there’s significant news on the California budget; otherwise, until I return you can catch up on taxes from the bloggers listed in the blogroll on the right.

When I return there will be big changes made to Taxable Talk. I’m about to switch hosting companies (that will happen in August) so I’ll be changing the formatting of the blog. I’m also going to redo my series on Online Poker and Taxes (some of the information is dated).

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Tax Changes in the California Budget

Posted on July 23, 2009 by Russ

The California budget deal will likely be voted on today or tomorrow. There are a number of tax changes in it that will impact Californians:

Estimated Taxes Accelerated (Again). Under federal law, taxpayers make four equal (25%) estimated tax payments on April 15, June 15, September 15, and January 15, 2010. California moved to 30% payments for April and June and 20% payments for September and January this year.

In the new budget, the estimated taxes are sped up even more. The first payment (April) will remain at 30% but the second payment (June) will increase to 40%. The September payment is eliminated, but the January payment is moved to December and will be 30%. Corporate estimated payments will follow the same pattern, except that the minimum franchise tax of $800 will still be due in April (15th day of the fourth month of the corporation’s fiscal year). This provision is estimated to accelerate $610 million into the 2009-2010 fiscal year.

Payroll Withholding Schedules Increased. Beginning in 2010 payroll withholding schedules will be increased by 10%. This provision is estimated to accelerate $1.7 billion of revenue into 2009-2010.

Non-retailers with Receipts Over $100,000 (annually) Must Register with the Board of Equalization. This means that service businesses (i.e. accountants, attorneys, consultants, etc.) will be required to register. They will also be required to file use tax returns annually. This provision is estimated to cause a revenue gain of $26 million for 2009-2010.

Backup Withholding Requirements will Conform to Federal Rules. This provision would require California businesses to withhold 7% of payments of interest, dividends, compensation, etc. if the IRS determines that a condition for withholding exists (with this 7% being withheld for the Franchise Tax Board). This provision is estimated to bring in $26 million into the 2009-2010 fiscal year.

You may have noticed that the biggest gains are from accelerating payments. Those are one-time fixes. It’s very clear to me that either this Fall or next Spring the California Legislature will be facing the same issues…unless the plan is that next year (2010) will be paying our 2012 taxes….

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Federal Toilet Paper Tax?

Posted on July 21, 2009 by Russ

Via Watts Up With That comes news of Congressman Earl Blumenauer’s (D-OR) proposed Water Resources Protection Act. Buried in this legislation are four new taxes [link opens a Word document]

– 3% excise tax on items disposed of in wastewater, such as toothpaste, cosmetics, toilet paper and cooking oil: These products wind up in the water stream and require clean up by sewage treatment plants.

– 0.5% excise tax on pharmaceutical products.

– 0.15% tax corporate profits over $4 million.

– 4 cent per container excise tax on water-based beverages.

I’m beginning to wonder if there’s anything the Democrats don’t want to tax.

As a reminder to those like Congressman Blumenauer, all taxes are passed on to consumers. Perhaps his constituents are different than most Americans and they want to pay more for the items they need on a daily basis. Perhaps they want a lower standard of living. Or perhpas they have the mistaken belief that only the wealthy pay taxes.

The Thomas Register shows that this bill has only seven co-sponsors. Hopefully that number will head to zero for this misguided piece of legislation.

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It’s Official, But the Details Are Lacking

Posted on July 21, 2009 by Russ

California has a budget deal. That said, the devils is always in the details and those are lacking this morning. What’s known is that local governments (counties and cities) will face a $5 billion cut, the plan includes borrowing and some “speeding up of tax collections” and other one-time fixes.

Needless to say, I’d like to know more about the changes in tax collections. Estimated payments went to a 30/30/20/20 scheme this year; are they thinking of a 45/45/5/5 scheme? Or some other foolish ideas that will make California’s excellent business climate even more palatable? Supposedly the details will be available late today or tomorrow. I’ll let you know when I see them.

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Budget Deal Done

Posted on July 20, 2009 by Russ

The Flash Report said this evening that a budget deal is done. “Lots of cuts, lots of borrowing, lots of gimmicks. But from the briefings I have had so far, the cuts are substantial, with mega-billions that are permanent.” The vote will supposedly be on Thursday. The budget should be available for public consumption either late tomorrow or Wednesday.

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