Time: Fri Nov 14 06:31:19 1997
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Date: Fri, 14 Nov 1997 06:18:11 -0800
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: State Taxation (fwd)

>                  State Taxation A Fraud!
>                    by Richard Forest
>Previous arguments that non-redeemable legal tender notes are not taxable by 
>the states were moral arguments, not acceptable by the courts.  Is it not 
>true, however, that law and morality do have some sort of relationship with 
>each other?  If there is not even a vague relationship between morality and 
>the law, then the law is nothing more than a perversion. The following is a 
>legal argument, not a moral argument.  It is based on information which 
>reveals that, once upon a time, our elected representatives were not the 
>mental morons we see paraded before us today.
>Under section 17137 of the California Revenue and Taxation Code, gross 
>income does not include income which the state is prohibited from taxing 
>under the Constitution or laws of the United States.
>Under the laws of the United States and the Constitution, as decided by a 
>long line of Supreme Court cases, the obligations and credit instruments of 
>the United States, including legal tender notes and federal reserve notes, 
>are exempt from all forms of state taxation. 
>Congress may waive this tax exempt status, and they have.  Current law 
>"A state or territory or a posession of the United States may tax United 
>States coins and currency (including federal reserve notes and circulating 
>notes of federal reserve banks, and national banks) as money on hand or on 
>deposit in the same way and at the same rate that the state, territory, or 
>posession taxes other forms of money."
>At first reading, this is rather discouraging. It appears that Congress has 
>given the states permission to tax that stuff it passes off as money. Don't 
>fret. This law contains two dagger points pointing straight at the heart of 
>state income taxes. One dagger is visible and the other cannot be seen with 
>the naked eye.
>The first dagger: It must be understood that tax exemption waivers are to be 
>interpreted strictly. If the law only allows one type of tax, then all other 
>types are excluded. 31 USC 5154 only allows a tax on federal reserve notes 
>as money on hand or on deposit. This is a property tax. Count the federal 
>reserve notes in your pocket and your bank account, on April 1st for 
>example, and the state will tax it the same way, if not at the same rate, 
>that other property is taxed. There is no such law currently on the books in 
>any state in America, but it is the only form of tax on federal reserve 
>notes that federal law permits. State income taxes on federal reserve notes 
>are not permitted by 31 USC 5154.
>The second dagger could not be seen if you read and re-read the law a 
>hundred times. This is because a case may be within the meaning of a statute 
>and not within it's letter, and within it's letter and not within it's 
>meaning. (Still with me?)
>The intention of the lawmaker constitutes the law. The intent of the 
>lawmakers is revealed in the legislative history of a statute. The 
>legislative history of 31 USC reveals that the current law is a restatement 
>of the earlier codified permanent law (31 USC 425, 426) without change in 
>intent. The statute from which this section was formed was signed into law 
>in 1894.
>In the midst of the Civil War, the federal government, lacking in specie 
>(silver and gold coin) to pay expenses of the war, enacted the first legal 
>tender laws in American history as a wartime expedient. After furious debate 
>in Congress over the constitutionality of the newly proposed law, Congress 
>issued 450 million dollars in United States Notes in 1862 and 1863. The 
>notes were made legal tender for federal taxes and for public and private 
>debts. They were made payable in specie, but not on demand. They were 
>payable in specie at the pleasure of the federal government. The notes, as 
>credit instruments of the federal government, were recognized as exempt from 
>taxation under state authority, even though they were legal tender. In 1875, 
>Congress made the notes payable in specie, beginning in 1879.
>For 15 years those notes were considered better than gold or silver. They 
>were convertible into gold and silver by demand, but gold and silver were 
>subject to state taxation. These notes were not taxable.
>By 1894, Congress - recognizing the use of these notes by adroit 
>manipulators for the avoidance of state taxes - decided to end the tax 
>exempt status of the notes.
>The proposal put before Congress (HR 4326) first read:
>"That no United States legal tender notes circulating as currency shall be 
>exempt from taxation under the authority of any state or territory: provided 
>that any such taxation shall be exercised in the same manner and at the same 
>rate that any such state or territory shall tax other money within it's 
>It is the statement of the law and the intent of Congress, as revealed in 
>the Congressional record for July and August of 1894, that only federal 
>reserve notes that are payable on demand are subject to taxation under state 
>authority, and these notes are subject only to a property tax as money on 
>hand or on deposit. That is the permanent codified law.
>In Neuberger v. Commissioner, 311 US. 83, 88 (1940), the Supreme Court 
>stated: "The maxim *expressio unius est exclusio alterius* (the expression 
>of the one is the exclusion of all others) is an aid to construction, not a 
>rule of law. It can never override clear and contrary evidence of 
>Congressional intent." The ... material from the Congressional Record of 
>1894 shows the development of HR 4326 from its beginning as a bill in 
>Congress to the time it was signed into law and became a permanent part of 
>the United States Code as 31 USC 425, 426 (Current 31 USC 5154).
>The bill (HR 4326) with its amendments was passed by Congress and signed 
>into law by Grover Cleveland on August 13, 1894. The signed law (Chapter 
>281, 28 Stat 278; U.S. Statutes at Large) states: Be it enacted by the 
>Senate and House of Representatives of the United States of America in 
>Congress assembled, that circulating notes of national banking associations 
>and United States legal tender 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.
>The subject of the law is "circulating notes of national banking 
>associations and United States legal tender notes and other notes and 
>certificates of the United States." They were made subject to State taxation 
>on the condition that they were "payable on demand and circulating or 
>intended to circulate as currency..."
>In Smith v. Davis, 312 US 111, 116 (1944) the Supreme Court stated (in 
>footnote 6): "The only Treasury notes that could be included within section 
>3701 (of the Revised Statutes; pertaining to tax exempt obligations) are 
>interest-bearing ones, in light of the provisions of the act of August 13, 
>1894, 28 Stat 278, section 1, 31 USC 425, allowing notes and certificates 
>payable on demand and circulating as currency to be taxed by the States."
>It should be noted that this case was decided at a time when there were only 
>two types of notes issued; interest bearing notes, or notes payable on 
>demand. There were no notes payable in anything by the Treasury.
>31 USC 5119 contains a list of the non-interest bearing notes of the United 
>States. The only federal reserve notes on that list are pre-1928 series 
>notes issued to federal reserve banks. (See the "Old Series Currency 
>Adjustment Act" (Public Law 87-66 June 30, 1961; 75 Stat 146) Section 4, and 
>the United States Code Congressional and Administrative News, 87th Congress, 
>First Session, 1961, volume 2, page 1910.)
>In summary, federal law permits a tax only on federal reserve notes which 
>are payable on demand, and even then it only permits a property tax on them 
>as money on hand or on deposit. Federal law does not allow a State income 
>tax on federal reserve notes whether or not they are payable on demand. It 
>does not allow any kind of tax on non-redeemable notes.
>                        ---------------------------
>                             F O O T N O T E S
>Julliard v. Greenman, 110 US 421, 449; American Bank and Trust Co v. Dallas 
>County, No. 81-1717, decided July 5, 1983, 103 Supreme Court Reporter; 31 
>USC 3124 (Former USC 742); 18 USC 8; 12 USC 411; People ex Rel. v. 
>Supervisors of New York, 7 Wall 26; Hamilton Co. v. Massachusetts, 6 Wall 
>(73 US) 632, 639.
>Austin v. Aldermen of Boston, 7 Wall 694.
>Oklahoma v. Barnsdall Corp. 296 US 521.
>Congressional Record - Senate 1894, August 3, pp. 8145, 6.
>Stewart v. Kahn, 11 Wall 493, 504.
>Flora v. United States, 362 US 145; 80 Supreme Court Reporter, headnote 4.
>United States Code Congressional Administrative News, 97th Congress, Second 
>Session, 1982, pp. 1895-2063, 4301-4312; House Report No. 97-651; HR 6128; 
>West's Words and Phrases ("substantive law").
>Black's Law Dictionary; Trebilcock v. Wilson, 12 Wall 695; American 
>Jurisprudence, 2nd Edition; 54 AmJur 2d Money II.
>See People ex Rel v. Supervisors of New York, 7 Wall 26.
>Congressional Record - House, 1894, July 5, p 7152.
>House Report No. 97-651.
>31 USC 5154, Public Law 97-258, Sep 13, 1982; 96 Stat 992; Public Law 97-

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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