Taxation Without Representation
This is the first year in a while in which I have not found myself filing tax returns in more than one state. I am – or at least I used to be – quite peripatetic. Not so long ago, I was on a plane a couple of times a month, off to give a talk at one venue or another. This did not make me rich, but the added income was nonetheless welcome. What was not welcome was that some states withheld income from whatever honorarium I was awarded. I owed no tax on these honoraria – none whatsoever. The amounts were too paltry. But to get back the money that was rightly mine I had the trouble of filing in the state that had done the withholding.
This first happened to me when Victor Davis Hanson had me out to speak at California State University at Fresno (where he was then located), and for a time I presumed that only the People’s Republic of California imposed sanctions of this sort on those who had the effrontery to drop in to do a service. A year or two ago, however, Nebraska dunned me in the same way, and I suspect that this practice will spread as state governments become more grasping. In the case of Nebraska, to add insult to injury, they did the refunds only after they had gone through all of the other income tax returns filed – which is to say, they put off as long as possible paying me back what was, after all, my own. The system in both California and Nebraska is designed to discourage those who earn a bit of change while passing through from ever recovering their property. In effect, Nebraska and California extract a forced loan and then throw obstacles in the way of recovering one’s principle.
For me, this has been an annoyance, which costs me a bit of time and another donation to the friendly folks who make Turbotax. “What must it be like for baseball players, for musicians, and for surgeons?” I wonder. “Can you imagine what it means for those who are truly itinerant? And can you imagine what a mess it would be if every state were to follow the lead of California and Nebraska?”
It is this sort of thing that the American Constitution was adopted to prevent. The commerce clause stipulates that Congress has the power “to regulate Commerce with foreign Nations, and among the several States, and with Indian tribes.” Then it stipulates that “no Tax or Duty shall be laid on Articles exported from any State.” And it forbids the states from laying “any Imposts or Duties on Imports or Exports” if it does not have “the Consent of the Congress,” and, in like manner, it forbids the states from laying “any Duty of Tonnage.”
Now I would readily admit that I am not an article exported from Michigan (though there are days when I feel like an article) and I don't weigh enough to be counted as tonnage, but my services are exported from my home state from time to time, and it strikes me that the withholding laws enacted in California and Nebraska are acts in restraint of trade. If I were in the legislature of Michigan, I would propose a law imposing a head tax on anyone from California or Nebraska bold enough to cross our state line. The way I figure it, if highway robbery is their game, there ought to be reciprocity.
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Comments:
Oct '10
Re: Taxation Without Representation
The Peoples Republic of California does a fine job in discouraging any efforts to recoup any sum. And somewhat ruthless about it as well.
From the standpoint of a former Oregon resident, a headtax on migration is long overdue. Good old Governor McCall had a motto.
Come visit Oregon, then Go Home ! Wise words, too little too late.
May '10
Re: Taxation Without Representation
A classic case for application of the dormant commerce clause. See Greve, Michael.
May '10
Re: Taxation Without Representation
Professor Rahe, what does the Constitution say about the "use tax", which is effectively a sales tax on items you purchase in one state and bring to another? For example, if you purchase an item in Oregon, where there is no sales tax, and bring it to California, then California requires you to report the value of the item on your tax return and to pay a "use tax". The use tax just happens to be exactly the amount you would have paid in sales tax if you had bought it in California.
Sep '10
Re: Taxation Without Representation
It gets far, far worse as covered in the 2009 article in CFO Magazine The Tax Men Cometh:
And if you are a Canadian company, worse yet. Current tax treaties between the US and Canada apply only at the Federal level. There are no tax treaties with individual states. The Federal tax treaty is designed to avoid double taxation by providing relief in the home country's tax return. No such remedy applies at the state level.
Apr '11
Re: Taxation Without Representation
Paul A. Rahe It is this sort of thing that the American Constitution was adopted to prevent. The commerce clause stipulates that Congress has the power “to regulate Commerce with foreign Nations, and among the several States, and with Indian tribes.” Then it stipulates that “no Tax or Duty shall be laid on Articles exported from any State.” And it forbids the states from laying “any Imposts or Duties on Imports or Exports” if it does not have “the Consent of the Congress,” and, in like manner, it forbids the states from laying “any Duty of Tonnage.”
... but my services are exported from my home state from time to time, and it strikes me that the withholding laws enacted in California and Nebraska are acts in restraint of trade.
· 1 hour ago
The congress and president are too busy distorting the commerce clause to mean anything they want to bother with real enforcement.
In my mind your performance is a product you produce as much as a service . Someone should sue as a violation of the commerce clause.
Dec '11
Re: Taxation Without Representation
You got a deal from Nebraska. Once you proved that you reported the Nebraska income on your Michigan return, Nebraska gave you a credit for the Michigan tax you paid. This apparently erased your Nebraska liability. Not all states provide that credit.
Oct '10
Re: Taxation Without Representation
Sorry, no such luck. This tax collection method has been in place for a long time between states. Some justifcation based on residency and obligations that are not challenged. Freedom ? A Catch 22 there.
Oct '10
Re: Taxation Without Representation
New Jersey has a similar 'use tax.' I know since I just payed it. How they rationalize taxing activities in states where they have no jurisdiction Is something I can't explain.
Re: Taxation Without Representation
It sounds like a tax on imports disguised as something else. I had to pay something like this when we moved to Michigan. I bought a Honda Odyssey in Oklahoma and registered it here. Big tax.
Re: Taxation Without Representation
Pseudodionysius: It gets far, far worse as covered in the 2009 article in CFO Magazine The Tax Men Cometh:
And if you are a Canadian company, worse yet. Current tax treaties between the US and Canada apply only at the Federal level. There are no tax treaties with individual states. The Federal tax treaty is designed to avoid double taxation by providing relief in the home country's tax return. No such remedy applies at the state level. · 8 hours ago
Very, very interesting. Thanks for this.
Re: Taxation Without Representation
Which ones don't?
Sep '11
Re: Taxation Without Representation
This is a tax trend that's only getting started. Just ask Dave Carter.
Truck drivers and trucking companies have to pay taxes on fuel they purchase--and on mileage they spend while on the roads of a given state. So if Dave is traveling down I-81 south of Harrisburg, Pa., he (or his employer) have to carefully record the 52 miles in Pennsylvania, the 13 miles in Maryland, the 45 miles in West Virginia, and so forth.
Later (or probably sooner) the states are going to start insisting on taxing the drivers for the time they spend in each state. Because they have records showing where that driver was. If 4% of Dave's mileage was in Maryland, the tax authorities will argue, shouldn't Maryland be able to collect income tax on 4% of Dave's income? And shouldn't Delaware be able to collect on 1.67%? And Tennessee collect on 5.61477%
Since trucking companies and state taxing authorities already work together to simplify log reporting, the trucking companies could provide all the necessary data--all Dave would have to is fill out state tax returns for most of the 57 states.
Easy peasy, no?
Apr '11
Re: Taxation Without Representation
It's actually terrible. I used to work for a payroll services company, and had a Major League team as one of my clients. What you're describing is known as multi-jurisdictional taxes, ie; being taxable to multiple jurisdictions within the same pay period. My client had to break down wages by jurisdiction based on the amount of time each person worked in each state/locality combination, each pay period.
The software at the time really didn't provide much help, and the players and staff had only a general idea what their take-home pay was going to be. On top of that, both the company and the employees had to file tax returns to all the taxing jurisdictions they visited. Also, at filing time, the employees accountants would have to defend any tax credits that were applied due to reciprocal agreements (live in one state, work in another) between the states.
Attempts to reconcile all of the above were a nightmare.
Apr '11
Re: Taxation Without Representation
Wanted to add, the above is a thing of the past. Taxes are now what those who have pay to those who coerce (government spending is wholely separate from, and not based on, taxes).
Edited on April 17, 2012 at 5:43pmOct '11
Re: Taxation Without Representation
Professional athletes have a real problem with state income taxes. A baseball player must apportion his salary by the number of games he plays in a given state with a tax and then file a return based on that. So a major league player might have to file something like 15 state returns plus a Canadian return. Ouch.