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

>                      State Taxation
>                       by Tony Bator
>A person, to properly understand his State tax liability, if any, must be 
>aware of (a) the Sovereignty of a State, (b) his inalienable rights, 
>constitutionally protected, (c) whether his State's Personal Income Tax law 
>is a Direct Tax or an Excise Tax, and (d) the difference between Income 
>Taxes and Property Taxes.
>                             State Sovereignty
>Under our form of government, it is necessary to understand how the 
>sovereignty of these distinct governments, i.e., the States and the 
>government of the Union, were resolved.  Upon ratification of the 
>Constitution by the sovereign people, the then existing condition was that 
>the States had retained the power of taxation and the Sovereign People had 
>granted to the National Government the power of taxation as specified in the 
>Constitution of the United States.  This sovereignty (including taxing 
>authority) clashed over the issue of the United States Bank, when it opened 
>a branch office in the State of Maryland.  The legislature of the State of 
>Maryland immdiately passed legislation taxing the notes of the Bank for the 
>express purpose of driving the bank out of  business in the State of 
>Maryland.  The matter eventually appeared before the Supreme Court of the 
>United States and the issue of sovereignty was resolved as shown by the 
>citations listed below.
>     McCulloch v. the State of Maryland, 4 Wheat 316, 425.
>     That the power of taxation is one of vital importance; that it is      
>     retained by the states; that it is not abridged by the grant of a      
>     similar power to the government of the Union; that it is to be      
>     concurrently exercised by the two governments; are truths which have
>     never been denied.  But such is the paramount character of the      
>     Constitution that its capacity to withdraw any subject from the action 
>     of even this power, is admitted.  the states are expressly forbidden to 
>     lay duties on import or exports, except what may be absolutely 
>     necessary for executing their inspection laws.  If the obligation of 
>     this prohibition must -- if it may restrain a state from the exercise 
>     of its taxing power on imports or exports -- the same paramount 
>     character would seem to restrain, as it certainly may restrain, a state 
>     from such other exercise of this power, as is in its nature 
>     incompatible with, repugnant to, the constitutional laws of the Union.  
>     A law, absolutely repugnant to another, as entirely repeals that other 
>     as if express terms of repeal were used.
>     McCulloch v. the State of Maryland, 4 Wheat 316, 429.
>     All subjects over which the sovereign power of a state extends are 
>     objects of taxation; but those over which it does not extend are, upon 
>     the soundest principle, exempt from taxation.  This proposition may 
>     almost be pronounced as self evident.
>     The sovereignty of a state extends to everything which exists by its 
>     own authority, or is introduced by its permission.
>The above citations make it perfectly clear as to what the sovereignty of a 
>state is; and that when something is determined to be repugnant to the 
>Constitution, Constitutional Law could withdraw that subject from the power 
>of taxation of a state.  It is upon these principles that our inalienable 
>rights are understood.  The following citations enumerate some of our 
>inalienable rights.
>     Butchers Union v. Crescent City Co., 111 US 746.
>     The right to follow any of the common occupations of life is an 
>     inalienable right.  It was formulated as such under the phrase "pursuit 
>     of happiness" in the Declaration of Independence which commenced with 
>     the fundamental proposition that "all men are created equal, that they 
>     are endowed by their Creator with certain inalienable rights, that 
>     among these are life, liberty and the pursuit of happiness".  This 
>     right is a large ingredient in the civil liberty of the citizen.
>     ... I hold that the liberty of pursuit -- the right to follow any of 
>     the ordinary callings of life -- is one of the privileges of a citizen 
>     of the United States.
>     Meyer v. Nebraska, 262 US 390, 399, 400.
>     While this court has not attempted to define with exactness the liberty 
>     thus guaranteed, the term has received much consideration and some of 
>     the included things have been definitely stated without doubt.  It 
>     denotes not merely freedom from bodily restraint but also the right of 
>     the individual to contract, to engage in any of the common occupations 
>     of life, to acquire useful knowledge, to marry, to establish a home and 
>     bring up children, to worship God according to the dictates of his own 
>     conscience and generally to enjoy those privileges long recognized at 
>     common law as essential to the orderly pursuit of happiness by free men 
>     ... the established doctrine is that this liberty may not be interfered 
>     with, under the guise of protecting the public interest, by legislative 
>     action which is arbitrary or without reasonable relation to some 
>     purpose within the competence of the State to effect.
>     Lynch v. Household Finance Corp., 405 US 538.
>     ... the dichotomy between personal liberty and property rights is a 
>     false one.  The right to enjoy property without unlawful deprivation, 
>     no less than the right to speak or the right to travel, is in truth a 
>     `personal' right, whether the `property' in question is a welfare 
>     check, a home, or a savings account.  In fact a fundamental 
>     interdependence exists between the person's right to liberty and the 
>     personal right in property.  Neither could have meaning without the 
>     other.
>These citations which give insight into our inalienable rights and other 
>rights are best understood when the definitions of the terms `civil liberty' 
>and `inalienable' are understood.
>Inalienable -- a word denoting the condition of those things the property in 
>which cannot be lawfully transferred from one person to another.  Public 
>highways and rivers are inalienable, there are also many rights which are 
>inalienable, such as the rights of liberty and speech.
>Civil Liberty -- the great end of all human society and government, is that 
>state in which each individual has the power to pursue his own happiness 
>according to his conscience, unrestrained, except by equal, just and 
>impartial laws.
>Now understanding the sovereignty of a state established by Constitutional 
>Law, it is obvious that the inalienable right to an occupation of common 
>right is not within the sovereignty of the States, and therefore withdrawn 
>from its taxing authority.  So then, what is an occupation of common right?  
>It is any occupation that does not exist as a result of the establishment of 
>government.  Therefore everyone whose check is drawn on the Treasury of a 
>State or any of its political subdivisions; or the Treasury of the United 
>States or any of its political subdivisions; does not have an occupation of 
>common right.  These occupations exist as a result of the establishment of 
>government; occupations of common right are those that exist in the private 
>sector and do not require the permission of the State, such as doctors and 
>lawyers.  This is why Congress defined the word "employee" in the Current 
>Tax Payment Act of 1943, and which is presently contained under Subtitle C, 
>Employment Taxes, Chapter 24 titled Collection of Income Tax at Source.
>                         Excise Tax or Property Tax
>Under the Constitution of the United States we have two great classes of 
>taxes: Indirect class and the Direct class.  It has been determined 
>constitutionally that real and personal property and the income from both 
>are subject to an Ad Valorem Direct Tax and the Rule of Apportionment when 
>applied to the citizens of the States.  And that the Federal Income Tax is 
>an Excise Tax falling within the Indirect Class of tax and subject to the 
>rule of Uniformity; with uniformity meaning that the tax shall be applied 
>the same geographically and may lawfully be subjected to a graduated tax 
>In California, the Personal Income Tax is an Excise Tax and is a mirror-
>image of the Federal Income Tax system.  This is confirmed by the following 
>citation from the Supreme Court of the State of California.
>     Holmes v. McColgan, 110 P2d 428, 430.
>     The legislature has consistently followed the federal provisions      
>     generally in the Personal Income Tax Act.  This policy makes
>     to the state a groundwork of relevant federal experience and judicial
>     pronouncements.
>Now remembering that the word "income" is a constitutional term and is 
>subject to definition by the Supreme Court of the United States, the Court 
>jealously protecting its sole power to interpret the terms and meanings of 
>the Constitution, stated in the following case:
>     Eisner v. Macomber, 252 US 189, 206.
>     In order, therefore, that the clauses cited from Article 1 of the 
>     Constitution may have proper force and effect save only as modified by 
>     the Amendment, and that the latter also have proper effect, it is 
>     essential to distinguish between what is and what is not "income" as 
>     the term is there used; and to apply the distinction as cases arise 
>     according to truth and substance without regard to form.  Congress by 
>     any definition it may adopt cannot conclude the matter, since it 
>     cannot by legislation alter the Constitution, from which it derives 
>     its power to legislate, and within whose limitation alone that power 
>     can be lawfully exercised.
>So it is obvious that the term "income" is a constitutional term and if 
>Congress does not have the authority to define it; the State legislature 
>cannot do so either.  So the definition established by the Supreme Court in 
>the cases of Doyle v. Mitchell Bros., 247 US 179, 185; Eisner v. Macomber, 
>252 US 189, 206; and Merchants Loan and Trust v. Smietanka, 255 US 509; and 
>Bowers v. Kerbaugh-Empire Co., 271 US 174 applies to the States also.  In 
>California, the Personal Income Tax is an excise tax.  As such it taxes 
>"income" as defined by the Supreme Court of the United States, which has 
>been determined to be an excise tax, and can be subject to graduated tax 
>tables because that is a political decision.
>The State also has the power to tax real and personal property and the 
>income from both.  Remember, the Supreme Court settled in 1895 what was 
>subject to a direct tax.  Real and personal property, the value of which is 
>determined by its income, is subject to an ad valorem tax based upon its 
>value when owned by a sovereign citizen with constitutionally guaranteed 
>rights, not a corporate citizen, created by the State, whose "income" from 
>whatever source has been made subject to an Income Tax.
>The State, when taxing real and personal property, must do so by an ad 
>valorem tax based on the value of the property.  They are required to make 
>an assessment, apply the ad valorem rate and forward the tax bill to you; 
>and upon receipt you are required to pay the tax rendered.
>Only those objects of real or personal property the State or its 
>Instrumentalities have assessed and submitted a tax bill on, need be paid.  
>These assessments, of course, can be protested, should the individual think 
>that the assessment of the property does not properly reflect its then 
>existing value.  It must be assumed that if no tax bill has been received 
>for any real or personal property, then the State or its instrumentalities 
>did not choose to exercise its taxing authority on that particular
>This, of course, is demanded by the 14th Amendment of the Constitution of 
>the United States and article XIII of the Constitution of the State of 
>California.  They are shown below.
>     U.S. Constitution, 14th Amendment, Section 1.
>     All persons born or naturalized in the United States, and subject to 
>     the jurisdiction thereof, are citizens of the United States and of the 
>     State wherein they reside.  No State shall make or enforce any law 
>     which shall abridge the privileges or immunities of citizens of the 
>     United States; nor shall any State deprive any person of life, liberty, 
>     or property, without due process of law; nor deny to any person within 
>     its jurisdiction the equal protection of the law.
>The Constitution of the State of California, Article 13, which deals with 
>Revenue and Taxation, a part of which is stated below:
>     The word "property" as used in this article and section, is hereby 
>     declared to include moneys, credits, bonds, stocks, dues, franchises, 
>     and all other matters and things real, personal, and mixed, capable of 
>     private ownership, etc. etc. etc.
>Now it was shown that we have an inalienable right to an occupation of 
>common right and that this is constitutionally protected from the taxing 
>authority of a State and the National Government.  There is another 
>constitutionally guaranteed right, not an inalienable one, that is affected 
>by the taxing authority; it is shown below:
>     The pursuit of happiness as used in the Declaration of Independence is 
>     the right to pursue any lawful business or vocation in any manner not 
>     inconsistent with the equal rights of others, which may increase one's 
>     prosperity or develop one's faculties so as to give one his highest 
>     enjoyment.  Butchers Union v. Crescent City Co., 111 US 757.
>This right is affected by the taxing authority as shown by the following 
>     Direct taxes bear immediately upon persons, upon possessions and 
>     enjoyments of rights; Indirect taxes are levied upon the happening of 
>     an event or an exchange.  Knowlton v. Moore, 178 US 41.
>As an additional thought, aside from taxation, when dealing with an 
>occupation of common right and the right to pursue any lawful business or 
>vocation; is this imposition of license fees and testing by the States.  
>This is nothing more than a scheme that impairs and denies these 
>constitutionally guaranteed rights.  The State of California leads in this 
>abuse of occupational licensing, and to those that have been prevented from 
>pursuing an occupation of common right because of this scheme, may in the 
>judgement of the writer, bring suit in a federal court, and very easily show 
>that the State has imposed a scheme that denies him his constitutional 
>It is now understood that the paramount character of the Constitution is 
>such, that it has limited the Sovereignty of the National Government to 
>those powers specifically granted by the people in the Constitution, 
>resolved the relationship that exists between the States and the National 
>Government by Constitutional Law, and contains within it what some people 
>refer to as the "Three Human Rights" guaranteed by the Constitution of the 
>United States, they being Personal Security, Personal Liberty, and
>That these human rights were brought forward from the Declaration of 
>Independence from the phrase Life, liberty and the pursuit of happiness, and 
>the Declaration of Independence is our first organic document.  That the 
>purpose of the Declaration of Independence and the Constitution of the 
>United States was to secure our rights and to bind government down with the 
>chains of the Constitution.
>In view of the above, I think it would be most informative to include a few 
>citations that place limitations on the legislatures of the States, and the 
>role of government in general.
>     Acts of a municipal corporation are not wanting in due process of law 
>     if such acts, when done or ratified by the State, would not be 
>     inconsistent with the Amendment (14th), the latter being not intended 
>     to bring under federal control everything done by the States illegally 
>     under state laws, but only the acts of states or their 
>     instrumentalities in violations of rights secured by the Constitution 
>     of the United States.  Owensboro Waterworks Co. v. Owensboro, 200 US 
>     38.
>     To deny to the States the power to impair a fundamental constitutional 
>     right is not to increase federal power, but rather to limit the power 
>     of both federal and state governments in favor of safeguarding the 
>     fundamental rights and liberties of the individual.  In my view, this 
>     promotes rather than undermines the basic policy of avoiding excess 
>     concentration of power in government, federal or state, which underlies 
>     our concepts of federalism.  Pointer v. Texas, 380 US 400, 414.
>And finally, the following was obtained by a paper prepared by the Honorable 
>Mathew O. Tobriner, Associate Justice of the Supreme Court of California:
>     Very recent decisions of the United States Supreme Court have 
>     dramatically applied procedural due process to situations in civil law 
>     which would have been inconceivable only a few years ago.  Because of 
>     these rulings, like those in the criminal area, portend significant 
>     further advances, we start with them.  In June, 1969, the United States 
>     Supreme Court, speaking thru Justice Douglas, in Snaidich v. Family 
>     Finance Corp, 395 US 337 (1969) cast a new judicial light upon 
>     relationships that had previously been legally obscure and forgotten.  
>     Although for more than a century creditors had enjoyed the benefits of 
>     summary prejudgement remedies, highly favorable to the creditor class, 
>     the court in Snaidich concluded that a Wisconson prejudgement wage 
>     garnishment statute violated a debtor's right to procedural due process 
>     by sanctioning the "taking of his property without affording him prior 
>     notice and hearing.  The debtor suffered a denial of due process by the 
>     interim seizure of his wages in the absence of any opportunity, before 
>     such seizure, of showing the invalidity or probable invalidity of the 
>     creditor's claim.
>[Reprinted from `Freedom League Newsletter', Feb. 1987]

Paul Andrew Mitchell, Sui Juris      : Counselor at Law, federal witness 01
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