00-1056 and 01-0817
BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 00-1056, 01-0817
) Account No. #####
AUDITING DIVISION OF )
THE UTAH STATE TAX COMMISSION, ) Tax Type: Income Tax
Respondent. ) Judge: Davis
G. Blaine Davis, Administrative Law Judge
For Petitioner: PETITIONER REP
PETITIONER REP 2
For Respondent: Mr. Tim Bodily, Assistant Attorney General
Mr. Dan Engh, from the Auditing Division
STATEMENT OF THE CASE
This matter came before the Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. §59-1-502.5, on August 30, 2001.
Petitioner is appealing the assessment of Utah individual income tax, penalty and interest made against him by Respondent for the tax years 1994, 1996, 1997 and 1998. Petitioner did not file Utah individual income tax returns for the years 1994 and 1996, claiming that he had determined he was not required to file returns for those years. For both of those years, Respondent made an audit assessment against Petitioner using the information it had in its possession. For the year 1994, Respondent determined that Petitioner had taxable income of $$$$$ and imposed tax, penalties and interest in a total amount of $$$$$. For the year 1996, Respondent determined that Petitioner had $$$$$ taxable income and imposed tax, penalties and interest in a total amount of $$$$$.
For the years 1997 and 1998, Petitioner filed Utah individual income tax returns, but Respondent made adjustments to Petitioner’s returns for both years. In 1997, Respondent adjusted Petitioner’s taxable income from $$$$$ to $$$$$ and determined that Petitioner owed a total of $$$$$, including tax and interest. In 1998, Respondent adjusted Petitioner’s taxable income from -$$$$$ to $$$$$ and determined that Petitioner owed a total of $$$$$, including tax, penalties and interest.
Petitioner claimed he did not have any (or a small amount in the case of 1997) Utah state income tax liability. In support of that claim, Petitioner recited several fallacious arguments, most of which are related to Petitioner’s assertion that the “fruits of his labor” are not taxable. His arguments include the assertions that the right to labor is a fundamental right and fundamental rights cannot be taxed, the income tax is a "voluntary" or consensual tax for which he does not choose to volunteer, and that wages received for services are not taxable.
In claiming that taxing wages is unconstitutional because labor is a fundamental right, Petitioner ignores history and case law. This argument has been addressed by many courts, including the U.S. Supreme Court, which stated that the power of taxation, including income taxes, is “exhaustive” and has “never been questioned, or if it has, has been so often authoritatively declared as to render it necessary only to state the doctrine.” Brushaber v. Union Pacific Railroad Company, 240 U.S. 1, 12 (1916). More recently a court stated, “it is clear beyond peradventure that the income tax on wages is constitutional.” Stelly v. Commissioner, 761 F.2d 113, 115 (5th Cir. 1985).
Also, Petitioner had received compensation in wages for services he provided to his employer. According to the Internal Revenue Code at 23 USC 61(a), "[c]ompensation for services" is income. Utah taxable income is based on federal taxable income. Therefore, to claim that he received no taxable income is incorrect.
Arguments similar to, and often identical to, Petitioner's arguments have been deemed to be without merit by courts in Utah and across the nation, in cases specifically dealing with the issue of individual income tax. It is frivolous for Petitioner to reassert arguments that have already been deemed without merit. Petitioner strings together quotes that are out-of-context and misapplied to support his positions. Meanwhile, he manages to avoid referring to cases that are directly on point. By purposely filing incorrectly and then asserting his frivolous arguments before the Tax Commission, Petitioner has delayed and impeded the administration of the tax laws.
The state of Utah imposes income tax on individuals who are residents of the state in Utah Code Ann. §59-10-104 as follows:
. . . a tax is imposed on the state taxable income, as defined in Section 59-10-112, of every resident individual . . .
State taxable income is defined in Utah Code Ann. §59-10-112 as follows:
"State taxable income in the case of a resident individual means his federal taxable income (as defined by Section 59-10-111) . . .
Federal taxable income is defined in Utah Code Ann. §59-10-111 as follows:
"Federal taxable income" means taxable income as currently defined in Section 63, Internal Revenue Code of 1986.
Taxable income is defined in the Internal Revenue Code at 23 USC 63 as:
Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).
Gross income is defined in the Internal Revenue Code at 23 USC 61(a) as:
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items; . . .
The requirement to file a federal income tax return is established by IRC.§6012. Utah Code Ann. §59-10-502, provides in relevant part:
An income tax return with respect to the tax imposed by this chapter shall be filed by:
(1) Every resident individuals, estate, or trust required to file a federal income tax return for the taxable year; . . . .
The Utah Legislature has determined that a $500 penalty is necessary in the following circumstances as set out in Utah Code Ann. §59-1-401(7):
If any taxpayer, in furtherance of a frivolous position, has a prima facie intent to delay or impede administration of the tax law and files a purported return that fails to contain information from which the correctness of reported tax liability can be determined or that clearly indicates that the tax liability shown must be substantially incorrect, the penalty is $500.
DECISION AND ORDER
Petitioner's arguments supporting his assertion that he did not have a Utah tax liability on the compensation he received for services he performed are completely without merit. Petitioner's position is frivolous, since the Internal Revenue Code clearly states that individual income tax is to be assessed on compensation for services. The courts have always upheld the assessment of individual income tax on wage income. Moreover, Petitioner refused to file returns and filed returns in furtherance of a frivolous position that clearly indicates that the tax liability shown must be substantially incorrect. Petitioner did so with intent to delay and impede, and his actions delayed and impeded the administration of the tax laws.
Based on the foregoing, the Commission sustains the assessment of tax, penalties and interest against Petitioner for the tax years1994, 1996, 1997 and 1998.
This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Failure to request a Formal Hearing will preclude any further appeal rights in this matter.
DATED this 10th day of January, 2002.
G. Blaine Davis
Administrative Law Judge
BY ORDER OF THE UTAH STATE TAX COMMISSION.
The Commission has reviewed this case and the undersigned concur in this decision.
DATED this 10th day of January, 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson
See United States v. Koliboski, 732 F.2d 1328, 1329(7th Cir. 1984), The court stated “the defendant’s entire case at trial rested on his claim that he in good faith believed that wages are not income for taxation purposes. Whatever his mental state, he, of course, was wrong, as all of us already are aware. Nonetheless, the defendant still insists that no case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME.”
See also Granzow v. C.I.R., 739 F.2d 265, 267(7th Cir. 1984),”It is well settled that wages received by taxpayers constitute gross income within the meaning of section 61(a) of the Internal Revenue Code . . . and that such gross income is subject to taxation." The court in Granzow cited a number of decisions from several circuits.
See also United States v. Mann, 884 F.2d 532 (10th Cir. 1989). In that case Mann offered many theories as to why he was not required to file income tax returns. The court stated, "His many theories include the asserted beliefs that 1) the United States Supreme Court has declared that the sixteenth amendment applies only to corporations, 2) the Internal Revenue Service (IRS) has no jurisdiction over him, 3) he is not a "person" within the meaning of 26 I.R.C. §7203, 4) wages are not income, 5) federal reserve notes are not legal tender, and 6) the income tax is voluntary." The court in Mann responded to these assertions as follows, "The government's expert on tax law, Mr. Chancellor, testified that the representation . . . that the Supreme Court has declared that the sixteenth amendment applies only to corporations -- is untrue . . . We agree and add that each of the views offered by Mann, whether found in his published materials or articulated additionally at trail, falls somewhere on a continuum between untrue and absurd."
In addition to the cases listed above, see Nelson v. Auditing Div., 903 p.2d 939 (Utah 1995). In Nelson the Utah Supreme Court stated, “Like most Utah residents, Nelson has a duty to file tax returns and pay state income taxes as they come due.” In that case the Utah Supreme Court upheld the assessment of Utah income tax as well as penalties and interest.