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Tax & Business Law Commentary

A commentary on tax and business law developments by Stuart Levine

Updated: 2017-11-01T06:26:03.901-04:00


Whips and Chains?


The following question was posed on the Maryland State Bar Association's Small and Solo Practice listserv discussion group:
Hello List,

First let me start by saying I hope my question doesn't offend anyone but I wanted to hopefully find someone who could point me in the right direction. I had a potential client call today and ask me to draft a "Domination Contract." I had no idea what that was until the client explained that she has been requested to be a Dominatrix by someone else and she would like me to draft a contract outlining their "do's and don'ts" of their session or meeting I guess. I'm not sure what would really go into a "contract" of this sort.

Is this even legal? I am not sure where to start looking. I was going to try to type in interesting keywords in westlaw to see if anything popped up. If anyone can help me or point me towards a great source I would appreciate it.
Of course, the question that first occurred to me is: Is the "Dominatrix" an independent contractor or an employee? This has obvious income tax and FICA/SECA implications.

My second thought went to the Martin Mull song, some of the lyrics of which are as follows:
"Last night I took you out/And we began to hmmm...."

"Hmmm, hm-hm-hmmmm, hm-hm-hmmmm, hm-hm-hmmmm... pick up the soap... Hmm, hm-hm-hmmmm, hm-hm-hmmmm, hm-hm-hmmmm, ... mayonnaise and rope... Hmm-hmmm-hm-hm, whips and chains.... hmm-hmm-hm-hm-hm, Great Danes... hmm-hm-hm-hm-hm-hm-hmmmm-hmmmm, your wife!"
(Hat tip on the lyrics to Paul Shrug.)

Original Intent on Representing the Unpopular


In 1770, a prominent Boston lawyer represented the Capt. Thomas Preston and the British soldiers after the Boston Massacre. They were immensely unpopular. This account of that lawyer's recollection of his retention for the defense was posted on October 20, 2006, on the blog, Boston 1775:The next Morning I think it was [i.e., 6 March 1770], sitting in my Office, near the Steps of the Town house Stairs, Mr. [James] Forrest came in, who was then called the Irish Infant. I had some Acquaintance with him. With tears streaming from his Eyes, he said I am come with a very solemn Message from a very unfortunate Man, Captain Preston in Prison. He wishes for Council, and can get none.I have waited on Mr. [Josiah] Quincy, who says he will engage if you will give him your Assistance: without it possitively he will not. Even Mr. [Robert] Auchmuty declines unless you will engage. . . .I had no hesitation in answering that Council ought to be the very last thing that an accused Person should want [i.e., be without] in a free Country. That the Bar ought in my opinion to be independent and impartial at all Times And in every Circumstance. And that Persons whose Lives were at Stake ought to have the Council they preferred: But he must be sensible this would be as important a Cause as ever was tryed in any Court or Country of the World: and that every Lawyer must hold himself responsible not only to his Country, but to the highest and most infallible of all Trybunals for the Part he should Act.He must therefore expect from me no Art or Address, No Sophistry or Prevarication in such a Cause; nor any thing more than Fact, Evidence and Law would justify. Captain Preston he said requested and desired no more: and that he had such an Opinion, from all he had heard from all Parties of me, that he could chearfully trust his Life with me, upon those Principles.And said Forrest, as God almighty is my judge I believe him an innocent Man. I replied that must be ascertained by his Tryal, and if he thinks he cannot have a fair Tryal of that Issue without my Assistance, without hesitation he shall have it.Upon this, Forrest offered me a single Guinea as a retaining fee and I readily accepted it. From first to last I never said a Word about fees, in any of those Cases, and I should have said nothing about them here, if Calumnies and Insinuations had not been propagated that I was tempted by great fees and enormous sums of Money.Before or after the Tryal, Preston sent me ten Guineas and at the Tryal of the Soldiers afterwards Eight Guineas more, which were all the fees I ever received or were offered to me, and I should not have said any thing on the subject to my Clients if they had never offered me any Thing.This was all the pecuniary Reward I ever had for fourteen or fifteen days labour, in the most exhausting and fatiguing Causes I ever tried: for hazarding a Popularity very general and very hardly earned: and for incurring a Clamour and popular Suspicions and prejudices, which are not yet worn out and never will be forgotten as long as History of this Period is read.For the Experience of all my Life has proved to me, that the Memory of Malice is faithfull, and more, it continually adds to its Stock; while that of Kindness and Friendship is not only frail but treacherous. It was immediately bruited abroad that I had engaged for Preston and the Soldiers, and occasioned a great clamour which the Friends of Government delighted to hear, and slyly and secretly fomented with all their Art.The attorney was, of course, John Adams, second president of the United States.Compare his actions to the remarks of Charles D. Stimson, the deputy assistant secretary of defense for detainee affairs, reported here.[...]



This post is just to clear a problem between Blogger and Bloglines.

Rollout for Maryland Courts Watcher


We officially rolled out the Maryland Courts Watcher by posting the following announcement on various Maryland State Bar Association listserves:
We are happy to announce the availability of a new free service, Maryland Courts Watcher.

Maryland Courts Watcher posts synopses of every judicial opinion available on the web. That includes the opinions of both of the Courts of Appeal, the United Stated District Court for the District of Maryland, the United States Bankruptcy Court for the District of Maryland, the Circuit Court for Baltimore City, the Business and Technology Courts for Maryland, and the Maryland Tax Court.

All postings include links to the full opinions. Postings are available on the web or via email, RSS, or Atom syndication.

Each posting has labels attached that will enable research into topic areas. Each case also has labels for the judge who authored the principal opinion and any judge who authored a concurring or dissenting opinion. Over time, this will allow users to develop a profile for any particular judge to get a better idea how he or she will approach a particular type of matter. Readers are also able to perform Google searches on the website.

Readers can post comments to any posting. We hope that, in time, this capability will allow the website to become a venue for serious discussion of issues raised by court opinions.

The website for Maryland Courts Watcher is:

Finally, we want and need additional editors to help out with the postings. If you want to volunteer, please send an email to mcw[symbol for "at"], using the subject line “MCW Volunteer.”

We have posted a more complete description of Maryland Courts Watcher in FAQ fashion here.

Bad News from Finland


The paper, To Have or Not To Have a Pet for Better Health?, in PLoS-One, reached the following conclusion:
Pet ownership was very lightly associated with poor health in the general working-aged population when using several health and disease indicators. Pet owners had a slightly higher [Body Mass Index] than the rest, which indicates that people having a pet (particularly a dog) could use some exercise.
The following solution was not suggested:


The Tax Foundation Can't Win for Losing


Even when I somewhat agree with the Tax Foundation, I am somewhat astonished by their cavalier abuse of the facts. Case in point: The recent post Is Maryland Gambling on Gambling to Balance the Budget?

I agree with the Tax Foundation that funding government via a state operated gambling operation is poor tax policy. My primary objection is that the revenue garnered through gaming operations is, in effect, a regressive form of tax. However, I would not say, as the Tax Foundation does (quoting an article from the Lottery Post),that:

The lottery's diminishing contribution to the state budget is one of many reasons why Maryland is facing nearly $8 billion in deficits over the next five years, analysts say.

That's a great point. It is, alas, basically not true. In the last six fiscal years, the gross revenue and net revenue (after expenses) from the lottery to Maryland's treasury were as follows:

YearGross SalesNet Revenue
2001$1.2 Billion$407 Million
2002$1.3 Billion$443 Million
2003$1.32 Billion$445 Million
2004$1.395 Billion$458 Million
2005$1.485 Billion$477 Million
2006$1.561 Billion$501 Million

As shown in the above table, the total net revenues over the six year period from the lottery increased by about 25%. Maryland State's expenditures over that period increased by less than 29%, that is, a percentage that is only slightly more than percentage growth of the lottery. Thus, while it is literally true that the lottery's contribution to the state budget has been "diminishing," neither the rate nor amount of decline could be said to materially contribute to a looming $8 billion budgetary shortfall (in a budget that, in FY 2006, was slightly less than $26 billion). (Note: The shortfall is projected over a 5 year period. My back of the envelope estimation tells me that the shortfall will be about 6% of the budget. That's a problem, but hardly a catastrophe.)

Note to The Tax Foundation: Even good arguments are undermined when their proponents substitute truthiness for truth.

Net Neutrality


Net neutrality explained:

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Misleading mumbo jumbo on net neutrality:

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If you still can't figure out what net neutrality is all about, follow the Ninja:

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America's Pastime


Apparently the Boston Red Sox will, on their own, cause approximately a 0.1% increase in the U.S. trade deficit in the month of December.

In October, the U.S. trade deficit was $58.9 billion. The $51.11 million that the Red Sox have to pay to the Seibu Lions by December 21 for for negotiating rights to Japanese pitching ace Daisuke Matsuzaka will therefore constitute a measurable portion of the December deficit if the December figure is in approximately in the same range as the October amount.

Of course, the foregoing calculation does not include the bats, gloves, shoes, etc., that the Red Sox and other Major League teams will purchase from offshore suppliers.


A commentator pointed to a discussion in The Hard Times which stated that:
Okay, no one is going to bid $51 million to negotiate with a player just because they think he’s good. Obviously, the Red Sox expect that signing Matsuzaka will give them marketing inroads in Japan, and make them a lot of money in the Far East. How much can they expect to make?

I’ll start off by saying that I have no idea, but we can still try to generate an estimate. There have been two situations in the past similar to this one: The Mariners’ signing of Ichiro Suzuki and the Yankees’ signing of Hideki Matsui. Why not examine how much money they made from that?

Unfortunately, there are no direct numbers on the teams’ revenues in Japan, so the only estimate we can make is going to be based off indirect evidence. Using Forbes reports on team revenues for the past seven years, here is what I found:

* In 2001, Ichiro’s rookie season, the Mariners made $27 million more than they had the previous year. The five teams closest to Seattle in revenues in 2000 increased their income by an average of just $6 million.

* In 2003, Matsui’s rookie season, the Yankees increased their revenues by $8 million. The five teams closest to the Yankees in 2002 revenues upped their earnings by an average of $4 million.

* Between 2000 and 2006, Seattle’s revenues have increased by $67 million. The five teams closest in revenues to Seattle in 2000 have seen their income increase by an average of $54 million.

* Between 2002 and 2006, the Yankees’ revenues have gone up $62 million, versus an average increase of $21 million for the five teams closest to them in revenues in ’02.

If average all of that together, we can estimate that signing a Japanese star player is worth something like $9 million a year. But wait, we’re not done. $9 million in 2001 is not the same as $9 million in 2007. Adjusting for inflation (in baseball, inflation has held at a pretty steady 10% a year), we find that the Red Sox should expect to see their revenues in 2007 to increase by about $14 million should they sign Matsuzaka. That’s a sizeable chunk of change.
In other words, by selling additional products, media rights, etc., back to Japan, the balance of trade flow moves in the other direction, back to the U.S.

I don't know enough about the overall economics of baseball to tell whether the Matsuzaka deal is good or bad. However, I still think that its overall effects on the balance of trade are likely to be negative.



The case of Tax Commissioner of West Virginia v. MBNA America Bank, N.A. is a very big deal. In that case, the Supreme Court of West Virginia held that the state could impose a corporate income tax on MBNA even though MBNA had no physical presence in West Virginia.

A state cannot impose a tax on a business engaged in interstate commerce unless, inter alia, the business has a substantial nexus with the state. In the sales tax area, in Quill Corp. v. North Dakota, the U.S. Supreme Court has held that there is such nexus only when the seller of taxable goods or services has a physical presence in the state attempting to impose the tax. The question remains open, however, whether substantial nexus sufficient to support the imposition of income tax requires the physical presence of the taxpayer.

In MBNA, the West Virginia Supreme Court held that the actual physical presence of a taxpayer was not required to allow the state to impose income tax. The money quote is the antithesis of the doctrine of original intent:
[P]rior to concluding, we simply wish to acknowledge the great challenge in applying the Commerce Clause to the ever-evolving practices of the marketplace. James Madison, Benjamin Franklin, and the other Framers at the Constitutional Convention who adopted the Commerce Clause lived in a world that is impossible for people living today to imagine. The Framers' concept of commerce consisted of goods transported in horse-drawn, wooden-wheeled wagons or ships with sails. They lived in a world with no electricity, no indoor plumbing, no automobiles, no paved roads, no airplanes, no telephones, no televisions, no computers, no plastic credit cards, no recorded music, and no iPods. Likewise, it would have been impossible for the Framers to imagine our world. When they fashioned the Commerce Clause, they could not possibly have foreseen the complex and varied ways that commerce is conducted today, especially via the internet and electronic commerce. It would be nonsense to suggest that they could foresee or fathom a time in which a person's telephone call to his or her local credit card company would be routinely answered by a person in Bombay, India, or that a consumer could purchase virtually any product on a computer with the click of a mouse without leaving home. This recognition of the staggering evolution in commerce from the Framers' time up through today suggests to this Court that in applying the Commerce Clause we must eschew rigid and mechanical legal formulas in favor of a fresh application of Commerce Clause principles tempered with healthy doses of fairness and common sense. This is what we have attempted to do herein.
Since I represent clients in this area, I will not offer any editorial comment on the West Virginia opinion. I would note, however, that the Court's holding is diametrically opposite to the holding of an intermediate appellate court that considered the same issue and was presented with essentially the same facts. See J.C. Penney Nat'l Bank v. Johnson, 19 S.W.3d 831 (Tenn.Ct.App. 1999). My guess is that this case will either go to the Supreme Court or it will set off a chain reaction of tax litigation in other states that will ultimately have to be resolved by the Supreme Court.

Hat Tip: The Tax Foundation's Tax Policy Blog which criticizes the MBNA opinion.

Why Bloggers Are Not Enough


Today, the Baltimore Sun published an article on statutory ground rents, a form of real estate interest little-known outside of the Baltimore area. The thrust of the article was that, as real estate prices in Baltimore City have risen, there has been a dramatic increase in homeowners being ejected from their property due to delinquencies in their payment of ground rents.

I am not certain that the situation is as much of a public policy problem as the article contends. However, the article sheds some light on the continued need for and vitality of newspapers. It also shows how newspapers can produce an important product in the age of cyber information.

As to the first point, the article online omits a sidebar that was presented in the print version of the paper. That sidebar gave some background on the manner as to how the article was prepared. It is obvious that the Sun put substantial resources into the piece. I would ask anyone who contends that blogs could displace newspapers as a primary source of news whether any blog could muster the resources necessary to research and write a similar article.

As to the second point, it is of some interest that the article was designed with web-multimedia in mind. In addition to the text that appeared in the print version, on the web there are two video presentations and two audio presentations. It appears that the Sun understands that it can't limit itself to producing a print product.

Finally, it is worthy of some note that the subject of article is inherently local. At one time, the Sun was truly a national newspaper. That is no longer the case because it can't compete with WaPo, the NYT, the WSJ, the LAT, etc. However, there is still important work to do locally and it's comforting to see that the Sun remains committed to covering local stories in a serious way. Of course, it remains an open question as to whether papers such as the Sun can make money with this more narrow focus.

New Blog In Town


I am pleased to announce the creation of a new weblog, Maryland Courts Watcher, that I will edit along with a number of other people.

Maryland Courts Watcher will post synopses of all formal opinions issued by the Court of Appeals and Court of Special Appeals of Maryland and synopses of selected opinions from other courts in Maryland. It will not contain any editorial comment, but will link to commentary posted on other blogs.

The blog is designed both to alert readers to new developments in Maryland courts that they may be interested in and to also provide a research tool outside of the commercial services. Thus, all postings can be searched through a Google custom search and each entry has subject tags.

He is the Walrus


The following headnote is from Judge Charles Moylan's opinion in the case of Nils, LLC v. Antezana:
Confessed Judgment - Purchase of Residential Property - The Provisions for Payment - Partial Defaults of Payment - The Attorneys' Negotiations - The Confessed Judgment Notes - Confessed Judgment - The Allocation of the Burden of Proof - What is a Meritorious Defense? A Question of Law for the Court - A Meritorious Defense to What? - The Antecedent Debt - Section 14-1315 Applies - Late Fees - Of Ships and Shoes and Sealing Wax . . .
(Emphasis added.)

The Front (Climate Not Warming Division)


Larry Ribstein has been carrying on a virtual one-man jihad against NYT's Gretchen Morgenson. (Start here and just work back.) I have absolutely no intention of getting caught in that crossfire. However, when he takes off as a defender of the "rights of corporate free speech," well, that's a little much.The occasion was a letter written to Rex Tillerson, the CEO of ExxonMobil by Jay Rockefeller (D. W.Va.) and Olympia Snowe (R. ME). The letter attacked ExxonMobil's past efforts as a leader of the global warming deniers and the Senators urged Tillerson to lead ExxonMobil to:end its dangerous support of the "deniers" . . . . [and] to guide ExxonMobil to capitalize on its significant resources and prominent industry position to assist this country in taking its appropriate leadership role in promoting the technological innovation necessary to address climate change and in fashioning a truly global solution to what is undeniably a global problem.Ribstein cheered the WSJ editorial that characterized Rockefeller and Snowe as "bullies." According to Ribstein:The letter doesn't threaten explicitly. But if a 300 pound bouncer is standing over you and asking you pretty please to stop, no explicit threats are really necessary. These are two prominent senators and, as the WSJ editorial points out, there's any number of things the government can do to a corporation.A few points:First, Rockefeller and Snowe are not the "government." They are two senators, one from each side of the aisle. Thus, their actions differ significantly from, for instance, the last six years of Rove-lead shakedown of corporate interests to fund the partisan advantage of the Republican party. (An effort, by the way, that the WSJ editorial board joined in as cheerleader-in-chief.)Second, ExxonMobil does not attempt to speak to these public issues directly. Rather, it hides behind front groups that it funds lavishly.Third, ExxonMobil does not fund science. It funds pseudo-science designed to advance its short-term economic interests at the expense of the commonwealth. Between 1998 and 2005, it gave over $2 Million to the Competitive Enterprise Institute ("CEI"), a right-wing think tank. See here. Further, according to Rockefeller and Snowe:A study to be released in November by an American scientific group will expose ExxonMobil as the primary funder of no fewer than 29 climate change denial front groups in 2004 alone. Besides a shared goal, these groups often featured common staffs and board members. The study will estimate that ExxonMobil has spent more than $19 million since the late 1990s on a strategy of "information laundering," or enabling a small number of professional skeptics working through scientific-sounding organizations to funnel their viewpoints through non-peer-reviewed websites such as Tech Central Station.It is a false analogy to compare, as the WSJ editorial does, ExxonMobil's and CEI's efforts to those of "the Pew Charitable Trusts, the Sierra Club, [and] Environmental Defense [sic]." These organizations have no predetermined economic interest in taking one side or the other in any scientific dispute. Obviously, that is not the case with respect to ExxonMobil. The recipients of its largess are intended to merely mouth the party-line.Senators Rockefeller and Snowe have it precisely right:ExxonMobil and its partners in denial have manufactured controversy, sown doubt, and impeded progress with strategies all-too reminiscent of those used by the tobacco industry for so many years.And, one could add, all-too reminiscent of those used by the lead mining industry, the asbestos industry, etc.Let's be candid here: ExxonMobil is not funding the "other side" in some spirited and free scientific debate. Rather, Ex[...]

Comment on the 2006 Elections


There has been a lot of hoo-ha in the media about how the voter shift to the Democrats was not nearly as great as is typically the case in mid-term elections. Just to check, I compared the overall vote for the House of Representatives in 1994 with the vote this year.

In 1994, allegedly a banner year for the Republicans, the Republicans got 51.5% of the popular vote for members of the House compared to 44.7% for the Democrats, a little less than a 7 point spread. See here.

This time out, the percentages were 57.7% for the Democrats and 41.8% for the Republicans, a little less than a 16 point spread. That is, better than double the spread of the Republicans in 1994. See here.

However, the total seats won by each party in the two elections were virtually the same, with the Republicans getting 230 seats in 1994 (and with 1 independent) and the Democrats getting 232 (with no independents) this year. The reason that the heavily Democratic vote did not translate into more seats is, no doubt, a testament to the improvements over the last decade in the art and science of gerrymandering.

Limited Liability and Its Discontents (Gilbert and Sullivan Edition)


Apparently, critics of limited liability have been around for a long time. From Gilbert and Sullivan's Utopia, Limited, the song Limited Liability:MR. GOLDBURY. Some seven men form an Association, (If possible, all Peers and Baronets) They start off with a public declaration To what extent they mean to pay their debts. That's called their Capital: if they are wary They will not quote it as a sum immense. The figure's immaterial--it may vary From eighteen million down to eighteen pence. I should put it rather low; The good sense of doing so Will be evident at once to any debtor. When it's left to you to say What amount you mean to pay, Why, the lower you can put it at, the better. CHORUS. When it's left to you to say, What amount you mean to pay, Why, the lower you can put it at, the better. MR. GOLDBURY. They then proceed to trade with all who'll trust 'em, Quite irrespective of their capital (It's shady, but it's sanctified by custom); Bank, Railway, Loan, or Panama Canal. You can't embark on trading too tremendous-- It's strictly fair, and based on common sense-- If you succeed, your profits are stupendous-- And if you fail, pop goes your eighteen pence. Make the money-spinner spin! For you only stand to win, And you'll never with dishonesty be twitted. For nobody can know, To a million or so, To what extent your capital's committed. CHORUS. No, nobody can know, To a million or so, To what extent your capital's committed. MR. GOLDBURY. If you come to grief, and creditors are craving, (For nothing that is planned by mortal head Is certain in the Vale of Sorrow-saving That one's Liability is Limited),-- Do you suppose that signifies perdition? If so you're but a monetary dunce--You merely file a Winding-Up Petition, And start another Company at once! Though a Rothschild you may be In your own capacity, As a Company you've come to utter sorrow-- But the Liquidators say, "Never mind--you needn't pay," So you start another company to-morrow! CHORUS. But the Liquidators say, "Never mind--you needn't pay," So you start another company to-morrow!Hat Tip: David Culpepper[...]

An Aside on Employment Numbers


In a recent post, I commented on two articles in the WSJ, one in the news section and one on the Op-Ed page. The employment numbers used in the Op-Ed piece seemed to me not to be credible. After some investigation, I discovered that the Op-Ed piece used the so-called "household survey" which reported significantly greater employment growth than the "payroll (or establishment) survey."

In yesterday's WSJ, Greg Ip focused on the two surveys and their divergent numbers (Divergent Data Raise Questions About Labor Market's Health). In reviewing the article, Dean Baker comments:
I looked at the data more closely and must come down on the side of the establishment survey. The simple arithmetic looks like this. Social Security tax collections were up 5.35 percent in fiscal year 06 compared to fiscal year 05. The average weekly wage rose by 3.9 percent, which implies job growth of 1.4 percent. Reported job growth in the establishment survey matches this closely, at 1.44 percent. However, we know that the Labor Department will add in 810,000 jobs to its March 2006 number in its benchmarked revision (these additional jobs are wedged in over the prior 12 months). When the data is adjusted for these additional jobs, the establishment survey shows job growth of 1.9 percent for the fiscal year, substantially more rapid growth than is implied by the growth in Social Security tax receipts.

There are complicating factors here -- self-employed workers pay SS taxes, but are not counted in the establishment data, many government workers don't pay into SS -- but these are not likely to change the basic story. It is implausible that the establishment survey is understating job growth, and it may well be overstating it.

Smoke! Smoke! Smoke! (That Cigarette)


At least as long ago as 1947, it was widely known that cigarette smoking was unhealthy, hence the caption on this post from the title of a famous popular song of that year. Apparently, the people at the Tax Foundation haven't figured out that this represents a public health issue. They oppose an increase in cigarette excise taxes because of a perceived spur to the criminal enterprise of cigarette bootlegging. (And see here.)As long ago as 1981, the cigarette industry realized that:Given a prince elasticity of -0.4 for total cigarette sales and -1.2 for teenage smoking participation, a 25 percent increase in the excise tax could be expected to reduce industry sales to about 1.2 percent below what would be expected in the absence of such an increase, and to reduce the number of teenage smokers to 3.5 to. 4.0 percent.As even the Tax Foundation admits, cigarettes are highly addictive. The ability to quit is related to the age at which one begins smoking--it's easier to quit the later you begin. Although I've seen no specific studies on this, one must assume that price elasticity is even more pronounced among younger teens. Thus, it makes good public health policy to increase the cost of cigarette consumption by increasing excise taxes. Thus, increasing excise taxes will have its greatest impact on those physically most at risk and will have positive effects for years going forward.The Cato study cited by TF is fairly irrelevant. It deals with cigarette smuggling into New York state and New York City which had high excise taxes relative to the rest of the country. The conclusion, that excise taxes always increase bootlegging, is simply not supportable. The correct conclusion is that excise taxes that are higher than those in jurisdictions that smugglers can easily travel to and from (e.g., North Carolina) can trigger an increase in criminal activity. However, that is not likely to be the case if, for instance, taxes are increased by a majority of all taxing jurisdictions. Moreover, to the extent that high excise taxes, coupled with a variety of other anti-smoking programs, reduce teen smoking, over time the demand (and the profit in smuggling) will decline. In fact, that's exactly what's been happening for a number of years.Just because a tax (or, for that matter, any enactment) has negative effects is not, in and of itself, a basis for opposing the tax. One has to weigh the negative impact (e.g., smuggling) against the positive effects (e.g., reduction in teen smoking, leading to a long-term, overall reduction, leading to a reduction in cigarette smuggling). TF offers only a one-eye view of cigarette excise taxes.Finally, in 2003, a California study concluded that "[p]reviously published studies that analyzed data from various time periods between 1950 and 2000 have estimated that 2% to 6% of cigarettes are smuggled within the United States" and that "the tobacco industry exaggerates smuggling claims." Thus, it's not at all clear that any increase in cigarette bootlegging is a major criminal problem.[...]

Focused Searching Update II


Today, I added four sites to the Google Co-Op search engine.

Two are tax specific, Tax Playa and Andrew Mitchell International Tax Services. (The Andrew Mitchell site has the incredible collection of tax flow charts that Jim Maule, justifiably, raves about.)

The other two, Docuticker and Open CRS Network, have a large amount of research material. While the majority of the material on those sites is not tax or business related, the quality of what can be found there makes it almost imperative that these sites be included in the search engine.

Focused Searching Update


I've added several more blogs to the Co-Op Search:

Again, any suggestions as to additional blogs or websites is welcome.

Focused Searching


You can now find on the right side of the page a search box below the title "Search Tax & Business Law Commentary Google Co-op Search Engine." This will allow readers to conduct Google searches that are limited to various tax and business blogs and other related sites. Thus far, the search engine is limited to searching the following sites:

The purpose of the co-op search engine is to allow searches on tax and business law topics where the sites that will be searched are narrowed even before the search is initiated. I will be adding additional sites as time goes on and suggestions are appreciated.

Taking Credit Where No Credit's Due


On Monday, Maryland Governor Bob Ehrlich's office issued a press release trumpeting "Governor Ehrlich Cuts Unemployment Insurance Taxes by $95 Million--Millions in Reduced Taxes Go to Maryland Employers." In other words, the Governor implied that he engineered a tax decrease.

He didn't.

To understand what actually occured, one has to know a little bit about unemployment insurance and the Maryland Unemployment Insurance Trust ("UIT").

Unemployment insurance is funded by a payroll tax. The tax is earmarked for a fund, the UIT. Financial demands on the UIT increase when unemployment rises and decrease when it falls. During recessionary periods, when unemployment is high, these demands threaten the solvency of the UIT.

In order to avoid a situation where the UIT became exhausted and could not pay unemployment insurance benefits, the General Assembly enacted a supplementary surtax that kicked in whenever the reserves in the UIT fell below a designated level. This determination was made every September 30. If on that date the reserves had fallen below 4.7 percent of the previous year's state-wide taxable wages, the surtax was triggered. The surtax applied to wages paid beginning in January of the following year. Due to sluggish labor market growth, the surtax was in effect for 2004 and 2005.

Maryland's method of funding the UIT had been criticized for a number of years. Among the criticisms was the fact that the surtax was triggered during times when the labor markets were under the greatest pressure. Because the surtax raised the cost of labor, it created a disincentive to hiring and wages at a time when tax incentives should have been pulling in the opposite direction. See here.

In 2003, a special task force was created to revise the way the UIT was funded. As a consequence of that task force's efforts, a comprehensive change in the funding mechanism was enacted by the General Assembly, Ch. 169 Laws of Maryland, 2005. That statute established a single experienced tax rate system to replace the previous experienced rates and flat-rate surcharge system. Six tax rate tables were established. The table used for a particular year now depends on the UIT balance from the preceding September 30 as a percentage of total taxable wages. The rate tables can be found here.

Gov. Ehrlich did not cut taxes on September 30. What actually took place was that the Division of Unemployment Insurance followed the mechanical procedure that had been mandated by Ch. 169 as enacted by the General Assembly in 2005. When it utilized this mandated formula, employers' were required to make unemployment insurance contributions based upon a lower rate table. The change in the formula used was due to the improvement in the labor market as the country came out of the recession: more money flowed into the UIT because of the increase in employment due to the (shallow) recovery and unemployment rates fell slightly, reducing demands on the fund.

Front Page News


TaxProf takes note of two pieces in today's WSJ. One was an interview, on page 1 (i.e., a news page), of this year's winner of the Nobel Memorial Prize in economics, Columbia University professor Edmund Phelps. The other was an op-ed piece by Brian S. Wesbury, the chief economist at First Trust Advisors L.P. The two pieces clashed, with Prof. Phelps suggesting higher taxes ("[I]t would be a good thing for the federal government to raise taxes and run big surpluses until we have retired the public debt. In the short run the higher tax rates might be unpleasant. But in the long run, with the debt reduced or eliminated, incentives to work or to advance in the world would be enhanced, because after-tax pay rates as a proportion of wealth would be higher.") and Wesbury recommending that we stay the Bush tax cut course.Presented in this way, it would appear that there are merely two economists who simply reach different conclusions after reviewing the same data. However, further investigation of one portion of the Wesbury piece exposes his essential intellectual dishonesty. Specifically, he states that:During the 12 months ending in September 2006, the [Bureau of Labor Statistics] household survey reported 2.54 million new jobs. Going back 24 months shows 5.5 million new jobs, an annual average of 2.75 million. This exceeds the booming 1995-2000 average of 2.34 million new jobs per year. The household survey, in contrast with the establishment survey, has consistently signaled a resilient economy. And it continues. In the past two months, the household survey has expanded by 261,000 per month, while the establishment survey rose by an average of just 120,000.While it is a little wonkish, there are good reasons why economists typically do not use the household survey, but instead rely upon the indice known as the "Employment, Hours, and Earnings from the Current Employment Statistics survey (National)." Barry Ritholtz explains the reason that the household survey, unadjusted, was misleading. His conclusion:Let's see who has the intellectually honesty to step up to the plate with a big mea culpa. You may assume any of the original advocates of this now totally untenable position [that the unadjusted household survey is more accurate] who adhere to it are little more than partisan hacks, and disregard them as appropriate.Just so the record is clear, here's the Employment, Hours, and Earnings from the Current Employment Statistics survey (National) on a monthly basis from January, 1992, through September, 2006:(Click to enlarge.)Do the math: During the 96 months of the Clinton Administration, the country added 22,635,000 jobs or almost 236,000 jobs a month. By contrast, during the 79 months of the Bush Administration, the country, on a net basis, has added only 3,109,000 jobs, or just a shade under 40,000 jobs a month. Even isolating the most recent 24 months, as Wesbury does, we find that only 4,026,000 jobs have been added or an average of just 167,750 per month. In other words, even when rebounding from a recession, job growth during this Administration is just over 70% of what it was during the Clinton Administration.(Wesbury also wrongly states that the "the booming 1995-2000 average [was] 2.34 million new jobs per year." In fact during the 60 months from January, 1995 through December 2000, a total of 16,428,000 jobs were created, an average of 273,800 jobs per month or 3,285,600 jobs per year.)I[...]

The Sweet Science?


The Journal of Law and Policy at Brooklyn Law School has an interesting student note by Joshua A. Stein, Hitting Below the Belt: Florida's Taxation of Pay-Per-Pay Boxing Programming is a Content-Based Violation of the First Amendment. Stein concludes that:
Florida is one of numerous states to authorize a tax specific to telecasts of boxing. As these taxes are specific to a type of television programming, they should be held by courts to be content-based restrictions on speech. However, boxing and other sports have been denied the protections of the First Amendment because they are deemed to be non-expressive. An historical and literary analysis of boxing demonstrates that the sport satisfies the Spence test because boxers intend to express particularized messages which are understood by their audiences. When strict scrutiny is applied to taxes on boxing telecasts, the state's interest in raising revenue is outweighed by boxers'—and their promoters'—freedom of expression.
Stein quotes Norman Mailer at length in an attempt to show that "[a]lthough the expression inherent in boxing cannot be neatly categorized, it is expressive conduct that conveys a specific message that has a substantial likelihood of being understood nonetheless."

Somehow, I can't buy the argument the two guys beating their brains out is an exemplar of "expressive conduct." However, I am sensitive to the argument that (i) there's a potential slipperly slope here and (ii) the power to tax is the power to destroy. For instance, if the state can tax boxing while exempting other sorts of content, what's to stop it from imposing a tax that is so high that it would, in effect, ban any show with any erotic material (however loosely defined) from the cable-ways.

Ultimately, of course, the state's efforts in this regard will fail. As I noted earlier, once the internet pipes get big enough, the broadcasters of internet content will be beyond the reach of state sales tax assessors. Anyone who doesn't think that boxing matches can't be moved offshore simply does not remember "The Thriller In Manilla"

or the "The Rumble in the Jungle."

Hat Tip: DocuTicker