Unfair Taxation

[chequita guevara]

Re: Re: Unfair Taxation

Originally posted by Dissident
most states without an income tax have high sales tax. My state is one example.

That's because your state, like my state, has other massive sources of revenue than taxing its own citizens' income, i.e., tourism. We have beaches and a mouse, you have gambling and prostitution. A high sales tax allows us to tax tourists, and thus, supposedly, tax residents less. Generally, we don't have to pay sales tax on food and shelter, so we're pretty insulated from having to pay for our state services.

[MarkGross]

Pinocchio's nose

To Whom it may concern,

I am writing in the hopes of informing you of my situation, which I believe contains elements related to taxation and individual liberties that may be newsworthy and of interest to many.

For 3 + years I have been in conflict with the State of Oregon related to an unemployment insurance tax they have attempted to levy upon me, and to their determination that I am an employer. While this may seem a common issue, I assure you that the circumstances are very different from the usual employment case.

First, I did not pay my supposed employees, they paid me referral fees when computer support customers that I referred them paid them for services they rendered. So Oregon is attempting to levy a tax upon me in which I am neither the payer nor the payee!

Second, the presumption of prima facie correctness was used by the State to support an essentially circular argument: In the first hearing the Employment Dept. contended that I am a Unemployment Insurance taxable employer because I supposedly indirectly paid (I call this the phantom payroll concept) the affiliated technicians. In the second hearing about their subsequent payroll tax audit and assessment, their argument was that since I am an employer, I must have indirectly paid the affiliated technicians wages!

Third, Oregon Law requires employers to make true and accurate quarterly payroll reports, and certify those reports with their signature. Since I am not a party to these transactions, I have no way of certifying how much customers paid affiliated technicians for computer services rendered. It seems unlikely that the Legislature would have made impossible demands of otherwise legitimate businesses, which indicates that the language of the law directly contradicts the Employment Dept. phantom payroll concept.

Fourth, since wages paid are a deductible business expense, if I deduct their phantom payroll from my real income on my federal schedule C, my business would be operating each year with a sizable loss. If I were to apply their indirect wage payment concept and make that deduction, it seems likely that I would be guilty of income tax fraud.

Lastly: On Oregon Dept. of Revenue Letterhead, from a Senior Policy Analyst, I have been informed that THE AMOUNTS THAT THE CUSTOMERS DIRECTLY PAID THE TECHNICIANS, WHICH THE TECHNICIANS ACCEPTED AND DEPOSITED INTO THEIR OWN ACCOUNTS AND SPENT AS THEY PLEASED, CONSTITUTES MY INCOME. This seems to be in direct contradiction to the commonly understood Federal definition of income, but is necessary for the phantom payroll concept to make any sense using generally accepted accounting and tax accounting rules and methods - see my fourth point above.

Thanks for your interest and for passing this along to any and all who might also have an interest.

Sincerely,

Mark Gross

[giblets]

Allowing any deductions for state taxes on the federal income tax is unfair.

[KrazyHorse]

Fair is a silly concept, but I agree in principle on removing state tax deductions for federal taxes.

[Kuciwalker]

Wait, WTF?

[Hauldren Collider]

If there's a federal deduction for state taxes, why don't the states just hike taxes a whole hell of a lot...?

[giblets]

If there's a federal deduction for state taxes, why don't the states just hike taxes a whole hell of a lot...?

Subsidizing something usually increases its consumption, but it doesn't necessarily increase it "a whole hell of a lot".

[Kuciwalker]

gribbler, your argument doesn't make sense. Inasmuch as the federal deduction fully refunds state taxes, the states have no economic incentive not to to raise taxes to precisely the federal rate, thereby capturing 100% of the tax revenue at no (marginal) deadweight loss.

[Kuciwalker]

But still, what the ****? Why was this thread nevived?

[giblets]

gribbler, your argument doesn't make sense. Inasmuch as the federal deduction fully refunds state taxes, the states have no economic incentive not to to raise taxes to precisely the federal rate, thereby capturing 100% of the tax revenue at no (marginal) deadweight loss.

Does it really fully refund the state taxes? Wow.

[Aeson]

Inasmuch as the federal deduction fully refunds state taxes, the states have no economic incentive not to to raise taxes to precisely the federal rate, thereby capturing 100% of the tax revenue at no (marginal) deadweight loss.

For this to be true then everyone's perception of the effect of the tax would have to be the same. Which obviously isn't the case.

[Kuciwalker]

Does it really fully refund the state taxes? Wow.

gribbler, your argument doesn't make sense. Inasmuch as the federal deduction fully refunds state taxes, the states have no economic incentive not to to raise taxes to precisely the federal rate, thereby capturing 100% of the tax revenue at no (marginal) deadweight loss.

i.e. I'm pretty sure that it actually doesn't fully do so

[giblets]

Okay. I assumed it wasn't anywhere near a full refund when I responded to HC.

[Hauldren Collider]

It sounded like a full refund to me, though I don't think that would make sense. Does anyone know what the break actually is?

[KrazyHorse]

The breakis that income paid as state taxes is deducted from your income for the purposes of federal taxation. The federal government therefore subsidizes your state income tax to the tune of your federal marginal tax rate (e.g. 28-35%).