00-1056 and 01-0817
Income Tax
Signed 1/10/02
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONER, )
) ORDER
Petitioner, )
) Appeal No. 00-1056,
01-0817
v. )
) Account No. #####
AUDITING DIVISION
OF )
THE UTAH STATE TAX
COMMISSION, ) Tax Type: Income
Tax
)
Respondent. ) Judge: Davis
_____________________________________
Presiding:
G. Blaine Davis,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER REP
PETITIONER REP 2
PETITIONER
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.[1] 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.
APPLICABLE LAW
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
Appeals
Division
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
Commissioner Commissioner
[1]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.