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It was all a dream about TennesseeEntry #693 Date: Thu, 6 Jan 2005 09:47:00 -0800 (PST) Tennessee Department of Revenue To whom it may concern: I am interested in purchasing the new illegal drug stamps that Tennessee now offers. I called this morning to purchase some of these, but I was told I could not buy them without travelling 2500 miles to Nashville. You would generate more revenue if you sold these stamps without requiring purchasers to travel to Nashville. It is likely that this tax is not legal and is instead double jeopardy punishment, especially given that the State of Tennessee will not sell these stamps unless a purchaser physically stands before the Department of Revenue, incriminating themselves in the process. Supposedly the DOR keeps no identifying information on the purchaser, but this additional burden is proof that these stamps are not easily acquired and thus isn't really a tax but a penalty, which is disallowed by the Supreme Court decision Montana Department of Revenue v. Kurth Ranch, et al. I am also inquiring on behalf of a disabled friend who would like to buy these stamps. It is possible that your refusal to sell stamps to this person without their physical presence is a violation of the Americans with Disabilities Act. It seem unreasonable to require a wheelchair-bound patient to travel to your office in order to pay their taxes. I am cc'ing W. Alan Beckelheimer of the Crossville Chronicle, where I read about these tax stamps. I am also cc'ing NORML, a marijuana legalization group that was mentioned in some articles I read about the drug tax; I believe your refusal to sell me stamps may help them get this new law ruled unconstitutional. Please reconsider your decision. Sincerely, Ben Livingston Date: Thu, 06 Jan 2005 12:27:34 -0600 Good morning, Thank you for your letter and your input. Section 2 of Public Chapter 803, Acts of 2004, under which the tax on unauthorized substances was enacted, states that the purpose of the act is to levy an excise tax to generate revenue for state and local law enforcement agencies that will allow those agencies to investigate, combat, prevent, and reduce drug crimes in Tennessee. Section 6 of that same act states that the Commissioner of Revenue shall issue stamps to affix to unauthorized substances to indicate payment of the tax. The tax is to be collected from dealers in these unauthorized substances. At no time and in no place in the act does the legislature state that the stamps are to be generated for sale to stamp collectors nor does the statute require the Department to sell such stamps to recreational stamp collectors. Section 6 also states that stamps may be sold either by mail or in person. However, Section 12 of the act gives the Commissioner of Revenue the authority to promulgate rules by which the tax will be implemented, administered, and enforced. The Commissioner has determined that the stamps will be sold only over-the-counter to persons who appear in person to purchase the stamps. I suggest that your argument regarding this requirement that a person purchase the stamps in person is a violation of the Americans with Disabilities Act is not relevant as, again, it is made from the standpoint of out-of-state stamp collectors who do not wish to make a personal appearance at the Department to purchase the stamps. As I previously stated, the tax was levied for the specific purpose of collecting tax revenue from dealers of unauthorized substances in Tennessee. The sale of such stamps to stamp collectors is a public relations privilege that the Department is willing to extend to such collectors; there is no statutory mandate that we provide collectors with stamps and, therefore, no violation of law in requiring them to make purchases in person. John Harvey, Taxpayer Services Division Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109. Date: Thu, 6 Jan 2005 10:32:22 -0800 (PST) At no point did I say I was a stamp collector. -- Ben Date: Thu, 06 Jan 2005 12:43:24 -0600 You are correct, sir. At no point did you state that you were a stamp collector. If I inferred that you are, it is because all of the requests to purchase stamps via the mail that we have received have been from collectors. If I have offended you, I apologize. However, the fact remains that the Department's policy is that stamps be purchased by personal appearance, regardless of the reason for purchase. John Harvey, Taxpayer Services Division Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109. Date: Thu, 6 Jan 2005 11:21:50 -0800 (PST) John, no offense taken, it was an honest mistake. I see from your web site that I can pay most taxes without travelling to Nashville, many of them online. Are there other taxes that must be paid in person? My thought is that the cigarette tax is most similar to a tax on illegal drugs, and the cigarette tax can be payed via postal mail. They say death and taxes are the only certainties, so it seems odd that the Tenessee Department of Revenue would refuse tax payments unless the taxpayer travels to the department's Nashville office. I am cc'ing, once again, W. Alan Beckelheimer of the Crossville Chronicle, and NORML. I am also cc'ing Senator Randy McNally, sponsor of the illegal drug tax bill. Senator McNally, I attempted to pay this new tax, but was refused by the Department of Revenue. They require I travel to their Nashville office to pay this tax, which is unduly burdensome and prohibitively expensive. You should look into this matter; the illegal drug tax treads on questionable legal ground and I believe DOR's refusal to accept my payment without my physical presence easily throws it into unconstitutional territory. Sincerely, Ben Livingston Date: Thu, 06 Jan 2005 13:33:35 -0600 Persons registered for all other taxes administered by the Department of Revenue receive periodic tax returns in the mail from the Department and may remit the tax due via the mail or, for some taxes, online through the state's web portal. John Harvey, Taxpayer Services Division Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109. Date: Thu, 6 Jan 2005 11:48:49 -0800 (PST) Sen. McNally, as you can see from Mr. Harvey's email below, the Department of Revenue accepts mailed or online payments for every tax but the illegal drug tax. This serves only to intimidate and unduly burden the taxpayer, discouraging them from paying this tax. Thus I believe this is not truly a tax, rather a penalty, which is unconstitutional. Any assistance you can provide is most appreciated. Sincerely, Ben Livingston From: Anne Fri Jan 07, 2005 @ 6:05 am The tax revenue officer got bogged down in your details..they are clearly prohibited by federal law from selling you the tax stamps.
Public Law 89-72 prohibits states from collecting taxes from individuals or businesses unless "nexus" exists...this law finally codified several taxpayer-friendly Circuit and U.S. Supreme Court decisions. A state can only tax a person or business if there is sufficient presence (nexus) in that state. So an out-of-state business could become taxable in Tennessee by hiring an employee there, holding inventory in a warehouse, or even by virtue of a travelling salesman making deals in their state or computer equipment left at a customer location in the state. An individual has nexus by their physical presence--if you live there, you pay income taxes. If you visit, you're subject to sales taxes on your purchases, hotel occupancy taxes, etc. Hence, the physical presence requirement to purchase the stamps.
This should have been the revenue officer's first response to you. Nexus is one of the most basic state tax concepts--kind of a pre-req for State Taxes 101.
--Anne From: jestapher Fri Jan 07, 2005 @ 7:33 am Your analysis is true, but based upon an assumption that I don't owe tax in Tennessee. I have said nothing of the sort. It is perfectly possible that I owe tax in Tennessee. In the case of the illegal drug tax stamps, the Department of Revenue can't ask me the question to which you assumed an answer -- whether I actually owe tax. To require that would violate my fifth amendment right against self-incrimination, and thus the law would be unconstitutional. From: Anne Fri Jan 07, 2005 @ 6:35 pm But...as an individual, you don't owe tax in TN unless you have established a physical presence which can only be done with your feet on their dirt.
Even if you bought something subject to those tax stamps that originated in TN and was mailed to you in WA, you don't owe the tax and they can't collect it from you.
However, you could argue that the seller of such item (the TN individual that sold mailed you the goods)was subject to the stamp tax. You could try to remit the tax on their behalf (to clear your conscience) and get your stamps, although you would have to show the the seller was a TN resident. If you try this route, please use Fed Ex/UPS, not the USPS to prove origination and destination.
--Anne From: jestapher Fri Jan 07, 2005 @ 7:45 pm It is possible that I established a physical presence in Tennessee. It is possible that I run a business that is required to pay the Tennessee illegal drug tax. It is possible that I own property in Tennessee subject to the illegal drug tax.
I am not required to prove that I owe this tax. In fact, if I am required to show I owe this tax, the law is unconstitutional. The Department of Revenue understands this -- they will not ask what the stamps are for, they will not require or ask for identification or proof of residency, they are forbidden from reporting tax stamp purchasers to the police. The law is questionably legal, and to not accept my tax payment -- which they can not assume I do not owe -- weakens the argument that this is truly a tax. From: Anne Fri Jan 07, 2005 @ 9:56 pm They can definitely make you prove you have nexus in their jurisdiction before moving on to the stamp tax issue. That's a separate issue from whether or not you have purchased an item subject to the stamp tax.
In most cases, a taxpayer wants to disprove nexus, but that is not always the case. Companies headquartered in WA state (including mine) very frequently must prove they have nexus in other jurisdictions in order to move portions of their revenue out of the reach of WA's B&O tax.
Move a server to TN that you use for your consulting business to give yourself nexus. You could also travel to any sort of tradeshow/convention/fair in the state and try to sell some sort of item while you are there. You will then have TN income, property, and sales/use tax filing responsibilities (although as mentioned above, you will not be subject to WA B&O taxes on a portion of your revenue). From: Jehosaphat Sat Jan 08, 2005 @ 1:35 am linx please From: Anne Sat Jan 08, 2005 @ 4:57 pm Too lazy to look for links...but I'll look for a basic nexus discussion in my tax research databases and send it to you in a word file (subscription based, so no links).
The "In a Nutshell" legal series (found in most larger bookstores in the legal section) has a state taxation book that has good commentary and explanations--its not a treatise or textbook, but it would be good for your to puruse because its so straightforward. I referred to it all the time in school, but I've tossed my copy. These nexus concepts are in the first or second chapter. From: jestapher Sat Jan 08, 2005 @ 5:13 pm Again, my point is this: if I am required to prove that I owe illegal drug tax in Tennessee before I can pay the illegal drug tax, then the law violates the fifth amendment's right against self-incrimination and is unconstitutional. So, you are technically correct, yes they can require me to prove I owe tax in Tennessee. But if they do that, the law is invalid. From: jestapher Sat Jan 08, 2005 @ 5:38 pm http://www.state.tn.us/revenue/misc/unauthsubfaq.htm
The tax specialist from DOR didn't simply overlook the issue you brought up. They know that they can't require me to prove I actually owe the illegal drug tax, that I have a nexus in Tennessee in re illegal drugs. I thought they might, but they know about the questionable constitutionality inherent in this law.
The second possible reason the law is unconstitutional, and the one I am arguing, is that this is not truly a tax because they won't accept my tax payments without the undue burden of me travelling to Nashville to pay it, the only "tax" in Tennessee with such a requirement. Thus I think this "tax" is really a penalty, which is not legal. From: Jehosaphat Sat Jan 08, 2005 @ 7:01 pm mostly want a link to the article in the paper, i cannot find it on thier site. From: y0fun Thu Jan 27, 2005 @ 12:57 am Here's the link:
http://www.crossville-chronicle.com/Chronicle/Opinion/alanexcisetax.html | |
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