THE PERSONAL INCOME TAX IS NOT AN EXCISE TAX
The personal income tax is not an excise tax.
Lately, there is a lot of information, including that from a few attorneys, arguing that the personal income tax is an excise tax. This is not correct, nor is this a legitimate argument, and this short paper is provided to explain why the personal income tax is not properly recognized as an excise, but as a tariff.
First, both
tariffs (imposts) and excises are indirect taxes under Article
1, Section 8, Clause 1 of the Constitution of the
“The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;”
Blacks law dictionary tells us that a tariff is a tax, or schedule of rates for a tax, imposed on foreign goods being imported into the country, or imposed on foreign activity occurring within the United States (America, – including the fifty states).
The Constitution, in Article 1, Section 8, Clauses 3-5,
gives the federal government absolute jurisdiction over all foreign matters,
affairs, and agreements with foreign nations, and over foreign persons in the
An excise tax, on the other hand,
as stated by the Supreme Court in Flint v. Stone Tracy Co., 220
"Excises are taxes laid upon:
(1.)
the
manufacture, sale or consumption of commodities within the country,
(2.)
upon
licenses to pursue certain occupations, and
(3.)
upon corporate privileges;”
In further identifying and describing
the nature of an excise tax, the court held:
“.. the requirement to pay
such taxes involves the exercise of the privilege and if business is not
done in the manner described no tax is payable ... it is the privilege which
is the subject of the tax and not the mere buying, selling or handling of
goods.”
So we see that excise taxes are taxes on taxable activities involving commodities, the possession of a license (like ATF licenses), and corporate privileges. Excise taxes are not taxes on general occupations (or on the work of citizens conducted by constitutional right), rather than on work conducted under a federal license or corporate banner, or involving commodities.
Some of the confusion on this
issue of “Is it
an excise or a tariff ?” comes from the Supreme Court itself. This is because the Court appears in the Stanton
decision in 1913, where the court is testing the legitimacy of taxing the
income of a mining corporation derived from its mining activities, to uphold the
CORPORATE part of the income tax provisions
of the tested legislation as an indirect
excise. Also, in the Brushaber v. Union
Pac. R.R. Co., 240
"Moreover in addition the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but on the contrary recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it." Brushaber, supra, at 16-17.
However, one should carefully note that despite its above referenced reasoning, the Pollock court did not uphold the income tax legislation tested in that case as an excise, but rather struck down the legislation completely as an unconstitutional attempt to tax directly without apportionment. Also, this statement by the Court seems to ignore the fact that “income tax” had already been previously enacted once in 1861 as an “Income Duty” laid on foreign imports, and also as an “Income Duty” on the pay of officers in the employ of the United States, i.e.: the federal government, Union army, or navy.
So apparently, “income tax” is not simply “in its nature an excise entitled to be enforced as such”, but is actually, only entitled to be enforced in exactly the manner in which it is actually written in the specific piece of legislation being tested by the Court. That legislation generally identifies itself what type of tax the income tax laid by that specific piece of legislation is deemed to be.
So, what we really see, is that any income tax laid by any specific piece of legislation, is not necessarily an excise tax, because each specific piece of legislation must itself be carefully examined to correctly identify the true nature of the tax laid by that legislation, without assuming anything about the nature of that tax or type of tax in previous pieces of legislation, or previous legislative attempts that were rejected, like in Pollock.
So what does the Supreme Court tell us about the income tax legislation tested in 1913? The first sentence of the Brushaber v. Union Pacific R.R. Co, 240 U.S. 1 (1916), states,
“As a
stockholder of the Union Pacific Railroad Company, the appellant filed his bill
to enjoin the corporation from complying with the income tax provisions of the
tariff act of
Here the court clearly tells us that when dealing with the provision of the income tax, we are dealing with the provisions of a tariff (specifically, the Underwood-Simmons Tariff Act). Tariff acts do not lay excise taxes applicable in the fifty states, they generally lay and impose a tax in the form of a tariff on foreign goods or foreign activity entering the U.S, or as an impost in the form of a duty on income, as was done in 1861. Tariffs on foreign goods and imposts on foreign activity, however, do not tax domestic activity in the fifty States.
So let us examine, how the tax is implemented in the law, and contrast that with what we know about each of the two types of indirect taxes at issue here.
First of all the income tax is
laid on the “taxable
income” of “individuals” under Section 1. Excise taxes are not laid on “taxable income”,
or “individuals”, according to the
Supreme Court in the Flint
decision identified above, but on: 1
- commodities, 2 – licenses, and 3 - (corporate) privileges. Is “taxable
income” a commodity, a license or a corporate privilege? No it
is not. But could there be “taxable
income” in regards to a duty to pay a TARIFF on foreign activity? As
was already done once before by the federal
government?
Excise taxes are not laid on “individuals” or “taxable income”, but is laid on the taxable activities identified
in law (ATF licenses, gasoline fuels, etc.).
Excise taxes are not graduated, and do not have tax “brackets” for
different groups of persons, because under the Constitution
the excise tax must be uniform. Excise
taxes are not dependent upon nationality, residence, or citizenship (or lack
thereof) for their collection, as the collecting the tax at the source is dependent upon
being effected by the withholding of tax only from non-resident
foreign persons. Excise taxes are imposed on everyone involved in the taxable activity, not just foreign persons. A tariff on the other hand only applies to foreign goods and foreign
NON-RESIDENT activity.
Next, the excise taxes under U.S law are contained and codified as the provisions of Subtitles D and E of Title 26. The income tax is in Subtitle A, and in fact, Subtitle A is, in its entirety, simply the codification of the original Underwood-Simmons Tariff Act of October 3, 1913 identified by the Supreme Court in the first sentence of the Brushaber decision, and nothing more. There is no domestic “excise”, deceptively, intentionally hidden inside the tariff act. Again, Subtitle A contains the tariff act and its provisions, and Subtitles D and E contain the excise taxes laid under U.S. law. The income tax is in Subtitle A, laid as a tariff that is collected at the source by federal tax collectors in the form of Withholding Agents who shift the burden of the tax they pay from themselves to the subject persons from whom the tax is collected by withholding money as tax from payments made to those subject persons. The income tax is not contained in Subtitle D or E with the other excises.
Finally, if the income tax were in fact an excise, its provisions would not specify different treatment for subject persons based on nothing other than residency or citizenship. An excise is collected from everyone engaged in the identified taxable activity, without exception, in order to be uniform in its operation as required by the Constitution. Excise taxes do not provide for different treatment of persons based on citizenship or where they reside. If they engage in the taxable activity, they pay the excise regardless of where they reside or who they are. Ask anyone with a liquor license.
So, when we see that the Withholding Agents are required to deduct and withhold income tax only from foreign persons in the form of non-resident alien individuals and foreign corporations, but not from resident aliens or domestic corporations involved in the same activities, we can readily recognize that this is not an excise on taxable activity, but a tariff on foreign activity conducted in the United States, laid as a duty imparted on domestic entities to collect the federal income tax from foreign subject persons (see 26 U.S.C. Sections 1441, 1442, 1443). Again, as soon as the non-resident (alien) becomes a resident (alien), the collection at the source of income tax by withholding from his or her pay terminates completely and is ended, because U.S. residents are not required by law to pay a tariff on their domestic activity or earnings.
If the income tax was in fact an excise tax, this differentiation of treatment of the two foreign parties would not exist in the law. It only exists to properly limit the application of the tariff ONLY to foreign activity, and never to DOMESTIC. As soon as the non-resident alien individual becomes a resident, his economic activity is removed from the jurisdiction of the federal government over foreign affairs, and is moved under the jurisdiction of the State in which the alien now resides. As activity under the domestic jurisdiction of a State, the “income” earned by the resident alien is no longer subject to collection at the source by withholding of the federal income tax tariff that he/she was subject to as a foreign person conducting foreign activity under the jurisdiction of the federal government, as a non-resident alien.
That would not be true if the
income tax were an excise tax – which doesn’t care if you are resident or
non-resident, domestic or foreign, only that you engaged in the activity taxed
by the excise legislation. Only a tariff differentiates between
foreign and domestic activity to determine subjectivity to the tax.
THE INCOME TAX PROVISIONS IN THE LAW ARE STILL THE ORIGINAL TAXING PROVISIONS of the
(Underwood-Simmons) TARIFF ACT (of