EMPLOYMENT TAXES
To understand federal employment taxes, one must first consider some common rules regarding taxes generally. One general rule is that all acts imposing taxes must do so clearly, leaving nothing to implication. As Justice Story said, in a very old case, "it is * * * a general rule in the interpretation of all statutes, levying taxes or duties upon subjects or citizens, not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operation so as to embrace matters, not specifically pointed out, although standing upon a close analogy. In every case, therefore, of doubt, such statutes are construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import." See the cases of Gould v. Gould, 245 U.S. 151 (1917); Crocker v. Malley, 249 U.S. 223 (1919); United States v. Field, 255 U.S. 257 (1921); Smietanka v. First Trust & Sav. Bank, 257 U.S. 602 (1922); United States v. Merriam, 263 U.S. 179 (1923); Bowers v. New York & Albany Lighterage Co., 273 U.S. 346 (1927); Reinecke v. Northern Trust Co.., 278 U.S. 339 (1929); Miller v. Standard Nut Margarine Co. of Florida, 284 U.S. 498 (1932); Old Colony R. Co. v. Commissioner, 284 U.S. 552 (1932);and White v. Aronson, 302 U.S. 16 (1937). “When the tax gatherer puts his finger on the citizen, he must also put his finger on the law permitting it". See United Dominion Industries, Inc. v. United States, 532 U.S. 822, 839 (2001)(J. Thomas concurring).
An excellent example of how regulations assist in determining the operation of a specific tax is the first tax on electronic transmissions, imposed by Section 500(f) of the Revenue Act of 1918. See "An Act To provide revenue, and for other purposes", 40 Stat. 1057, ch. 18. The first set of regulations to interpret how this tax was imposed was Regulations 57. The revised, 1920 edition of Regulations 57 are posted here.
When a student reads this set of regulations, he will find the following regarding how this tax operated:
ORIGIN OF MESSAGE DETERMINES TAXABILITY.
ART. 3. Originating within the United States.– The tax is upon the transmission by telephone, telegraph, radio, or cable of dispatches, messages, and conversations originating within the United States. Messages transmitted from a point within the United States to a point without the United States are subject to the provisions of the act unless sent with charges "reversed" or "collect." Messages transmitted from a point without the United States to a point within the United States are not subject to the tax, unless sent with charges "reversed" or "collect."
Nothing in this set of regulations stated that a transmission completely within the United States was subject to the tax.
In reference to wage withholding, the Revenue Act of 1918 limited such withholding to non-resident aliens and foreign corporations:
(a) That all individuals, corporations and partnerships, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, of any nonresident alien individual (other than income received as dividends from a corporation which is taxable under this title upon its net income) shall (except in the cases provided for in subdivision (b) and except as otherwise provided in regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof:
See extracts (§§ 221 and 237).
This same scheme was set forth in the §§ 221 and 237 of the Revenue Act of 1921, 42 Stat. 227, ch. 136. Wage withholding was limited to non-resident aliens and foreign corporations in the following federal income tax acts:
I. §§ 221 and 237 of the Revenue Act of 1924, 43 Stat. 253, ch. 234, and Regulations 65, Arts. 361-376 and 601, Treasury Decision 3640, 26 T.D.I.R. 745.
II. §§ 221 and 237 of the Revenue Act of 1926, 44 Stat. 9, ch. 27, and Regulations 69, Arts. 361-376 and 601, Treasury Decision 3922, 28 T.D.I.R. 558.
III. §§ 144 and 145 of the Revenue Act of 1928, 45 Stat. 791, ch. 852, and Regulations 74, Arts. 761-781.
IV. §§ 143 and 144 of the Revenue Act of 1932, 47 Stat. 169, ch. 209, and Regulations 77, Arts. 761-781.
V. §§ 143 and 144 of the Revenue Act of 1934, 48 Stat. 680, ch. 277, and Regulations 86, Arts. 143-1through144-1.
VI. §§ 143 and 144 of the Revenue Act of 1936, 49 Stat. 1648, ch. 690, and Regulations 94, Arts. 143-1through144-2.
VII.§§ 143 and 144 of the Revenue Act of 1938, 52 Stat. 447, ch. 289, and Regulations 101, Arts. 143-1through144-2.
VIII. §§ 143 and 144 of the Internal Revenue Code of 1939, 53 Stat., and Regulations 103, Arts. 19.143-1through 19.144-2.
More later after students learn the above.
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Note: While the following is not necessarily related to employment taxes, it is surely important for an understanding of the federal income tax. Please study that which appears below because the old tax laws and regulations are all interrelated.
A fundamental rule of statutory construction is that laws which are in pari materia (related in subject matter) are to be read and construed together. "[A]ll acts in pari materia are to be taken together, as if they were one law." See United States v. Stewart, 311 U.S. 60, 64 (1940), Sanford's Estate v. Commissioner of Internal Revenue, 308 U.S. 39, 44 (1939), and Harrington v. United States, 78 U.S. 356, 365 (1877). This is particularly true for the federal tax laws. While there are many such acts, all of them are regarded as parts of one system of taxation, and construction of any one act may be assisted by review of other acts in this "system." See United States v. Collier, Fed.Cas.No. 14,833 (Cir. Ct. S.D.N.Y. 1855). A prior tax act, even one which has been repealed, still is to be considered as explanatory of later acts. See Southern Ry. Co. v. McNeill, 155 F. 756, 769 (Cir. Ct. E.D.N.C. 1907).
On February 24, 1919, the Revenue Act of 1918 was adopted by Congress. See "An Act To provide revenue, and for other purposes", 40 Stat. 1057, ch. 18. This Act was different from the 1916 Act in that it imposed a tax merely in lieu of the tax imposed by the 1916 Act. This is shown by the plain language of § 210 (40 Stat. at 1062):
"Sec. 210. That, in lieu of the taxes imposed by subdivision (a) of Section 1 of the Revenue Act of 1916 and by Section 1 of the Revenue Act of 1917, there shall be levied, collected and paid for each taxable year upon the net income of every individual a normal tax at the following rates:"
The Revenue Act of 1921 was adopted by Congress on November 23, 1921. See "An Act To reduce and equalize taxation, to provide revenue, and for other purposes," 42 Stat. 227, ch. 136. This act closely followed the pattern of the Revenue Act of 1918 in that it also imposed a tax in lieu of the 1918 tax. In § 210 of this act (42 Stat. at 233), the section imposing the tax read as follows:
"Sec. 210. That, in lieu of the tax imposed by section 210 of the Revenue Act of 1918, there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * * ."
The Revenue Act of 1924 was adopted by Congress on June 2, 1924. See "An Act To reduce and equalize taxation, to provide revenue, and for other purposes," 43 Stat. 253, ch. 234. Like its predecessors, this act imposed a tax in lieu of the previous tax. Section 210 (43 Stat. at 264) read as follows:
"Sec. 210. (a) In lieu of the tax imposed by Section 210 of the Revenue Act of 1921, there shall be levied, collected, and paid for each taxable year upon the net income of every individual (except as provided in subdivision (b) of this section) a normal tax * * *. "
Two years later, Congress enacted the Revenue Act of 1926. See "An Act To reduce and equalize taxation, to provide revenue, and for other purposes,"44 Stat. 9, ch. 27. Section 210 of this act read almost identically as the former acts imposing the tax:
"Sec. 210. (a) In lieu of the tax imposed by section 210 of the Revenue Act of 1924, there shall be levied, collected and paid for each taxable year upon the net income of every individual (except as provided in subdivision (b) of this section) a normal tax * * *."
Again, two years later, Congress enacted another act named the Revenue Act of 1928. See "An Act To reduce and equalize taxation, provide revenue, and for other purposes," 45 Stat. 791, ch. 852. By this time, Congress had been enacting similar legislation for 15 years, and it changed the format of the income tax acts. The format of this act was decidedly different from the previous acts, and this format was ultimately used for the 1939 Internal Revenue Code. In this new format, the tax became imposed in § 11:
"Sec. 11. Normal Tax on Individuals. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * *. "
It must be noted that while the "in lieu of" feature of the tax appeared directly in the section imposing the tax in the prior acts, this § 11 made no reference to the same, although the act itself did. Congress moved the "in lieu of" feature from the section imposing the tax and placed it in § 63 (45 Stat. at 810) of the act:
"Sec. 63. Taxes in Lieu of Taxes Under 1926 Act. The taxes imposed by this title shall be in lieu of the corresponding taxes imposed by Title II of the Revenue Act of 1926, in accordance with the following table:
"Taxes under this Title Taxes under 1926 Act
Secs. 11 and 211 .... in lieu of ... sec. 210
Sec. 12 ................... in lieu of ... sec. 211"
Congress did not enact after 1928 another major tax law for four years; on June 6, 1932, it did enact, however, the Revenue Act of 1932. See "An Act To provide revenue, equalize taxation, and for other purposes," 47 Stat. 169, ch. 209. This act was patterned upon its predecessor, the 1928 Act, and it thus had a § 11 which imposed the tax, and a § 63 providing the "in lieu of" feature:
"Sec. 11. Normal Tax on Individuals. There shall be levied, collected, and paid for each taxable year upon the entire net income of every individual a normal tax * * *. "
"Sec. 63. Taxes In Lieu of Taxes Under 1928 Act. The taxes imposed by this title shall be in lieu of the corresponding taxes imposed by the sections of the Revenue Act of 1928 bearing the same numbers."
Two years later, Congress enacted the Revenue Act of 1934. See "An Act To provide revenue, equalize taxation, and for other purposes," 48 Stat. 680, ch. 277. Like the 1928 and 1932 Acts, this act contained a § 11 as well as a § 63:
"Sec. 11. Normal Tax on Individuals. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * * ."
"Sec. 63. Taxes In Lieu of Taxes Under 1932 Act. The taxes imposed by this title shall be in lieu of the corresponding taxes imposed by the Revenue Act of 1932."
The next major income tax act of Congress was the Revenue Act of 1936. See "An Act To provide revenue, equalize taxation, and for other purposes," 49 Stat. 1648, ch. 690. Here, Congress continued the same scheme first established in 1928, with §§ 11 and 63:
"Sec. 11. Normal Tax on Individuals. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * * ."
"Sec. 63. Taxes In Lieu of Taxes Under 1934 Act. The taxes imposed by this title and Title IA shall be in lieu of the taxes imposed by Titles I and IA of the Revenue Act of 1934, as amended."
Finally, on May 28, 1938, Congress enacted the Revenue Act of 1938. See "An Act To provide revenue, equalize taxation, and for other purposes," 52 Stat. 447, ch. 289. This act followed the format of the similar income tax acts adopted in 1928, 1932, 1934, and 1936, and it established much of the format for the 1939 Internal Revenue Code. Here again, there was a § 11 and a § 63:
"Sec. 11. Normal Tax on Individuals. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * * ."
"Sec. 63. Taxes In Lieu of Taxes Under 1936 Act. The taxes imposed by this title and Title IA shall be in lieu of the taxes imposed by Titles I and IA of the Revenue Act of 1936, as amended."
On December 31, 1938, there was in existence a federal income tax that was imposed by the Revenue Act of 1938. But, this act simply imposed a tax which was in lieu of the 1936 tax, which tax was in lieu of the 1934 tax, which was in lieu of the 1932 tax, which was in lieu of the 1928 tax, which was in lieu of the 1926 tax, which was in lieu of the 1924 tax, which was in lieu of the 1921 tax, which was in lieu of the 1918 tax, which was in lieu of the 1916 tax. At that time, many other taxes were scattered throughout various Congressional tax acts, and there appeared to Congress a need to consolidate these laws into one act. This was the purpose for enacting the 1939 Internal Revenue Code.
On February 10, 1939, the 1939 Internal Revenue Code was approved and became law. The preface to this Code made it clear that it simply codified the existing tax acts into one law:
"The internal revenue title, which comprises all of the Code except the preliminary sections relating to its enactment, is intended to contain all the United States statutes of a general and permanent nature relating exclusively to internal revenue, in force on January 2, 1939; also such of the temporary statutes of that description as relate to taxes the occasion of which may arise after the enactment of the Code. These statutes are codified without substantive change and with only such change of form as is required by arrangement and consolidation. The title contains no provision, except for effective date, not derived from a law approved prior to January 3, 1939."
In essence, those various internal revenue laws then in force and effect on January 2, 1939, were placed into this one act that created the 1939 IRC. Section 4 of the enacting clause of this Code provided that any prior law codified in this act was thereby repealed; but § 4 did not repeal any law not so codified. Most of the income tax provisions in the 1939 IRC were derived from the 1938 Revenue Act, and § 11 of the 1938 Revenue Act became § 11 in the 1939 Code. But while §§ 11 through 62 of the 1938 Act were incorporated into the 1939 Code, § 63, which provided the "in lieu of" feature, was not, and therefore was not repealed. Thus, the 1939 Code was nothing more than an incorporation of the 1938 Act into its provisions, and the un-repealed § 63 in the 1938 Act operated to make the 1939 Code's income tax laws an act which was in lieu of the 1936 tax.
The 1954 Internal Revenue Code, 68A Stat., was a rearrangement of the provisions of the 1939 Internal Revenue Code combined with some other changes. See Detailed Discussions of the Technical Provisions of the Bill by the House and Senate, 1954 U.S.C.A.N.S., pp. 4145 and 4793, as well as Table II, 68A Stat. at 952. The 1986 Internal Revenue Code is just simply the renamed 1954 Internal Revenue Code. See 100 Stat. 2085, at 2095. Today, the 1986 Code is merely a replacement or substitute for the 1954 Code, which was a replacement or substitute for the 1939 Code, which was the codification of the 1938 Revenue Act. The 1938 tax was one which was in lieu of the 1936 tax, which was in lieu of the 1934 tax, which was in lieu of the 1932 tax, which was in lieu of the 1928 tax, which was in lieu of the 1926 tax, which was in lieu of the 1924 tax, which was in lieu of the 1921 tax, which was in lieu of the 1918 tax, which was in lieu of the 1916 tax.
A PDF of the relevant parts of these tax acts is posted here.
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