Time: Fri Nov 14 06:30:17 1997
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Date: Fri, 14 Nov 1997 06:02:31 -0800
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: State Taxation a Fraud (fwd)
<snip>
>
> State Taxation of Federal Obligations
>
> Frankly, although we have great respect for the FTB legal staff, we're
> puzzled as to why they think that the U.S. laws and Constitution do not
> apply to California. So..., we have written to the FTB asking for the
> reasons why 31 USC Section 3124(a) and the U.S. Constitution are
> subordinate to California [tax codes]. - Speidell's California
> Taxletter, 8/1/88
>
>As the King of Siam said, "'tis a puzzlement". We would add to Speidell's
>statement the question, "Why does the FTB think that California law does not
>apply to them?"
>
> Gross income does not include income which this State is prohibited
from
> taxing under the Constitution or laws of the United States of
America...
> California Revenue and Taxation Code 17133
>
> ... obligations of the United States Government are exempt from
taxation
> by a State or political subdivision of a State. The exemption applied
> to each form of taxation that would require the obligation, the
interest
> on the obligation, or both,.. 31 USC 3124(a)
>
>The controlling revenue law in California, and the Franchise Tax Board is
>violating state law as well as Federal law in their depredations on the
>citizens of this state.
>
>The bureaucratic agencies, not the people, not the people's representatives
>who write the laws in Sacramento, rule here in California. The never-to-be-
>sufficiently-damned 1982 Dauberger Opinion of the California State Board of
>Equalization (BOE), cited Smith v. Davis, 3323 US 111 (1944), Julliard v.
>Greenman, 110 US 421 (1884), and former 31 USC 425 (current 31 USC 5154) as
>their authority to tax United States currency (Federal Reserve notes are
>Federal obligations under 18 USC 8 and 12 USC 411). This opinion is
>administrative drivel; a piece of a code here, a piece of case law there.
>The chutzpah of the board was blatant when it did not cite all the words of
>31 USC 425. It is basic Supreme Court case law that all of the words of a
>statute or code have significance. Those who have studied the authorities
>cited in "Dauberger" already know that they do not lend any credence to the
>contention of the BOE that the FTB is acting lawfully in collecting state
>income taxes from individuals. The statute,
>
> ... circulating notes of national banking associations and United
States
> legal tender notes and other notes and certificates of the United
States
> payable on demand and circulating or intended to circulate as currency
> and gold, silver, or other coin shall be subject to taxation as money
on
> hand or on deposit under the laws of any State or Territory... (Aug.
> 13, 1894 ch.281, 28 Stat. 278)
>
>from which 31 USC 425 was created, is a specific waiver of the tax exempt
>status of Federal obligations which the Georgia State property tax upheld in
>the Smith v. Davis case fit like a glove. It is important that Smith v.
>Davis was a case involving a Georgia State property tax, a type of tax that
>comes within the meaning of the specific waiver, unlike a State income tax
>which does not. Before the 1894 statute, U.S. currency was totally exempt
>from State taxation; see Julliard v. Greenman, 110 US 421, 448, 449
(1884), a
>case cited by the BOE which does not support the BOE opinion; and New York
v.
>Supervisors, 74 US 26 (1869).
>
>The status of a money on hand tax is provided for in section 212, in part 2
>(property taxes) of the California Revenue and Taxation Code. The State
>income tax is provided for under part 10 of the Revenue and Taxation Code.
>They are two different animals.
>
>Smith v. Davis was cited by the BOE as authority that federal tax exempt
>status applies only to interest-bearing notes. This is based on statements
>taken out of context. The full context of the case vitiates the
contention.
>Looking at Smith v. Davis 323 US 111 (1944), on page 116 of the case, at
>footnote 6 at the bottom of the page, the Court states:
>
>The only Treasury notes that could be included within the section 3701 [of
>the Revised Statutes, which was the predecessor to current 31 USC 3124] are
>interest-bearing ones in light of the provisions of the Act of Aug. 13,
1894,
>28 Stat 278 Chap 281, 31 USC 425, [current section 5154] allowing notes and
>certificates payable on demand and circulating as currency to be taxed by
the
>states.
>
>In 1944, a note was either payable on demand, or interest-bearing. The
Court
>had not conceived of the type of "note" that is now circulating. Under the
>wording and intent of the statute the exempt status of current notes have
not
>been waived at all, and if they were redeemable in specie, they still would
>not be subject to a state income tax under the terms of the waiver. At
>page117 of the case, the Court says, "It is unnecessary to extend such tax
>exemption, at least through statutory interpretation, to
non-interest-bearing
>claims or obligations which the United States does not use or need for
credit
>purposes." The "notes" now circulating are used for credit purposes just as
>the greenbacks issued during the civil war were issued for credit purposes
>because they were not payable on demand until January 1, 1879, and the
>"notes" now circulating are not currently payable on demand. A note is
>either payable on demand or it is a credit instrument. The Congressmen who
>issued the civil war notes that were not redeemable until years after, and
>the Congressmen who wrote the 1894 law that was used by the Court in Smith
v.
>Davis to make its determination, understood that fact, Congressmen during
the
>civil war and who wrote the 1894 statute called the notes issued during the
>war a "forced loan". They were credit instruments which the nation used for
>credit purposes until they became redeemable. Nor can a statement that
>Federal Reserve notes are not interest bearing survive close examination.
31
>USC 5119 (b)(1) is the list of all the non-interest bearing debts of the
>United States; Federal Reserve notes, in general, are not on that list.
>
>The state income tax does not fall within the limitations and qualifications
>of the waiver created by the 1894 statute. See also Beery v. County of Los
>Angeles, 116 C.A.2d 290, 296, 299 (1954),
>
> The question is whether the taxes herein were levied in accordance with
> the permission granted by the Congress. The conditions imposed by the
> Congress, with respect to permission to tax, were: that the money to be
> taxed shall be taxed as money on hand or on deposit...
>
>and Hibernia Savings Society v. San Francisco, 200 US 310, 316; and the
>Congressional Record of July and August, 1894 (H.R. 4326) for further
>authority explaining this statute. The Court determinations, the intent of
>Congress displayed in the Congressional Record, and the wording of the
>statute itself are clearly in agreement; there is no ambiguity or
>contradiction.
>
> The right of taxation, where it exists, is necessarily unlimited in its
> nature. It carries with it inherently the power to embarrass and
> destroy.
>
> It is well settled that the States cannot exercise this authority in
> respect to any of the instrumentalities which the General Government
may
> create for the performance of its constitutional functions. It is
> equally well settled, that this exemption may be waived wholly, or with
> such limitations and qualifications as may be deemed proper, by the law
> making power of the nation; but the waiver must be clear, and every
well
> grounded doubt upon the subject should be resolved in faver of the
> exemption. Austin v. Aldermen of Boston, 74 US (7 Wall) 694, 699
> (1869).
>
>31 USC 3124 is the general statement of exemption of Federal obligations
from
>state taxation, subject to specific waiver. Waivers of the tax exempt
status
>of Federal instrumentalities are strictly interpreted. See Oklahoma v.
>Barnsdall Corp., 296 US 521. There is no Congressional waiver of the tax
>exempt status of United States currency or Federal Reserve notes which
allows
>a state income tax on individuals, and the agencies have yet to cite a
>general waiver or a specific waiver which allows such a tax.
>
>We have a much lower respect for the opinions of the legal staffs of the
>agencies than does `Spidell's' taxletter and we say that any case law they
>cite in support of their positions on any subject should not be taken at
face
>value, but should be studied closely to determine whether the agency is
>citing a case in the correct context and for the force of the reasoning of
>the justices who made the decision. It is the natural tendency of
government
>officials to expand their power at the people's expense.
>
>The state "taxes" you because they have the power on their side. The law
has
>nothing to do with it. This is nothing more than an exaction in the guise
of
>a tax.
>
>[Edited from `American Information Network Newsletter', Sep/Oct 1988]
>
<snip>
===========================================================================
Paul Andrew Mitchell, Sui Juris : Counselor at Law, federal witness 01
B.A.: Political Science, UCLA; M.S.: Public Administration, U.C.Irvine 02
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