Isabella Carter
The power of taxation is subject to both constitutional and inherent limitations. Constitutional limitations are explicitly provided for in the constitution, while inherent limitations include the fact that taxes may only be levied for public purposes, and that the state may only tax persons and properties under its jurisdiction. The U.S. Constitution gives Congress the power to tax but also places limits on that power. For example, direct taxes, such as income taxes, must be apportioned based on population, and articles exported from a state may not be taxed. The Supreme Court has also weighed in on how far taxes can go, emphasizing the sweeping character of Congress's power.
| Characteristics | Values |
|---|---|
| Congressional Power | Power to levy taxes is subject to an exception and two qualifications |
| Tax Exemption | Properties used for religious, charitable, and educational purposes |
| Direct Taxes | Must be apportioned based on population |
| Indirect Taxes | Must follow the rule of uniformity |
| Taxation Jurisdiction | Limited to persons and properties under a state's jurisdiction |
| International Comity | Property of a foreign state may not be taxed by another |
| Non-Imprisonment | No imprisonment for debt or non-payment of poll tax |
| Due Process | No deprivation of life, liberty, or property without due process of law |
| Equal Protection | All persons subject to legislation shall be treated alike under like circumstances |
| Non-Delegation | Power to tax may not be delegated |
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What You'll Learn
Direct and indirect taxes
The US Constitution gives Congress the power to tax but also places limits on that power. Direct taxes, for example, must be apportioned based on population.
Direct taxes are paid directly to the government by an individual or business and cannot be passed on or shifted to another taxpayer. They are calculated based on one's capacity to pay and are levied on income and profits. They include income tax, corporate tax, capital gains tax, securities, transaction tax, and property tax.
Indirect taxes, on the other hand, are levied on goods and services and can be passed on or shifted to another entity or individual. They are collected by an intermediary, such as a supplier or manufacturer, who then remits the tax to the government. Indirect taxes are regressive, meaning they are applied uniformly irrespective of the income level of individuals. Examples of indirect taxes include value-added tax (VAT), goods and services tax (GST), sales tax, customs duties, excise taxes, and tariffs.
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Due process of law
The power of taxation is subject to both constitutional and inherent limitations. Constitutional limitations are explicitly provided for in the constitution, while inherent limitations are related to the nature of the power to tax itself.
One of the key constitutional limitations on taxation is the requirement of due process of law. This means that taxpayers may not be deprived of life, liberty, or property without due process. In the context of taxation, due process entails that any deprivation of property through taxation must be done under the authority of a valid law and after following fair and reasonable methods or procedures. The government must provide notice to taxpayers in the case of failure to pay taxes, and taxpayers shall be treated alike under like circumstances and conditions, both in privileges conferred and liabilities imposed.
The power to tax can only be exercised for a constitutionally valid public purpose, and the subject of taxation must fall within the taxing jurisdiction of the state. The government is prohibited from using any form of arbitrary or unjust assessment that denies the taxpayer a fair opportunity to assert their rights before a competent tribunal. All persons subject to taxation legislation must be treated equally, and taxable articles or kinds of property of the same class should be taxed at the same rate to avoid direct double taxation.
In addition to the due process requirement, there are other specific constitutional limitations on the power of taxation. For example, direct taxes, such as income taxes, must be apportioned based on population, while articles exported from a state may not be taxed at all. The Constitution also prohibits capitation taxes unless they are in proportion to the census enumeration.
These constitutional limitations on the power of taxation ensure that the government's taxation powers are exercised fairly and justly, protecting the rights of taxpayers while also allowing for the necessary collection of taxes for public purposes.
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Taxing exported articles
The U.S. Constitution grants Congress the power to impose taxes but also places limits on that power. The Export Clause, also known as Article 1, Section 9, Clause 5, prohibits the taxation of exported goods and services. This clause states that "No Tax or Duty shall be laid on Articles exported from any State".
The Supreme Court has interpreted this clause to mean that federal taxation is prohibited not only on export goods but also on services and activities closely related to the export process. This interpretation aims to prevent any burden by way of tax or duty from being imposed on the exportation of articles.
However, this prohibition does not relieve exported articles from the ordinary burdens of taxation that apply to similar property. For example, in Turpin v. Burgess (1886), the Court ruled that a general tax laid on all property, including that intended for export, is not prohibited as long as it is not levied on goods in the course of exportation or because of their intended exportation.
In addition, the Court has attempted to limit the term 'Articles exported' to permit federal taxation of pre-export goods and services. For instance, in IBM (1996), the Court held that a tax on insuring exports was functionally the same as a tax on the exports themselves.
The Export Clause and related court interpretations ensure a balance, ensuring that taxation does not impede the free flow of goods and services in international trade while also maintaining the government's ability to generate revenue through taxation.
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Inherent limitations
The power of taxation is subject to both constitutional and inherent limitations. While constitutional limitations are explicitly provided for in the constitution, inherent limitations are restrictions that are not explicitly mentioned in the constitution but are inherent to the nature of taxation.
Purpose
Taxes may only be levied for a public purpose. This means that taxation is a means to raise revenue for the government to carry out its functions and provide public services. The power to tax can only be exercised for a constitutionally valid public purpose, and the subject of taxation must be within the taxing jurisdiction of the state.
Territoriality
The state may only tax persons and properties under its jurisdiction. This limitation recognises the sovereignty of a state within its territory and the reach of its laws and regulations.
International Comity
The property of a foreign state may not be taxed by another. This limitation respects the sovereignty of foreign states and avoids potential conflicts between nations.
Exemption
Government agencies performing governmental functions are exempt from certain taxes. This limitation recognises that government bodies exist to serve the public and should not be burdened with taxation that could hinder their ability to carry out their duties.
Non-Delegation
The power to tax is legislative in nature and generally may not be delegated to other branches of government. This limitation ensures that the power to tax is exercised by the legislative body, which is accountable to the people through the democratic process.
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Tax exemptions
The US Constitution gives Congress the power to tax but also places limits on that power. Direct taxes, such as income taxes, must be apportioned based on population, and articles exported from a state may not be taxed.
Various tax exemption programs are offered by governments to reduce tax liability. For example, the City of Los Angeles provides tax exemptions for "creative artists" generating up to $300,000 in taxable and non-taxable gross receipts from creative activities. Small businesses in Los Angeles that do not exceed $100,000 in gross receipts are also eligible for tax exemptions if they file a timely renewal statement. The city also offers utility tax exemptions for senior and disabled citizens, as well as exemptions for charitable, non-profit, and religious institutions recognized under specific tax sections.
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