Why People Hate Government -- Reason #472
Why We Hate Government — Reason #472
Obscure legislation, such as the Arizona Use-Tax Gotcha provision, that turns ordinary citizens (through unknowing noncompliance) into criminals.
According to legend, the Emperor Nero would “publish” new legislation and decrees in very tiny print posted to the tops of columns, where no one could read them. That way, he had many handy excuses to arrest and punish his enemies. He could claim to have complied with the letter of the Rule of Law–the requirement that legislation must be widely publicized–while violating its spirit.
Although their intentions* are better than Nero’s, Arizona’s Legislators and Governor are guilty of perpetuating a violation of the spirit of the Rule of Law with regard to what we call the Arizona Use-Tax Gotcha. Let us explain…
In 2011, by overwhelming majorities, the Arizona Legislature and Gov. Jan Brewer passed HB 2332, which requires Arizonans to report on their 2011 income tax returns the purchase during 2011 of items online or out-of-state for which no retailer collected tax–think Amazon.com. (And please enjoy reading/decoding the statutory legalese in the actual legislation–that could be Reason #473 to hate government.)
What they did right
Please note that from a certain angle, the Legislature and Governor were actually doing us a favor. As the Arizona Department of Revenue explains in a new guide to the use tax, the use tax has been around since 1955. And since that time, Arizonans (whether they knew it or not) were supposed to remit sales taxes on untaxed out-of-state purchases by sending those payments by mail to the Department (the current address for the Department is listed on page 2 of the use tax guide).
The nice thing the Legislature and Governor did through HB 2332 was to create a line-item on our income tax return forms so that Arizona taxpayers can wait until April 15, 2012 to pay the use taxes they owe for 2011 via their income tax returns. Our understanding is that they can pay by April 15 for those liabilities without interest or penalties (please ask your tax preparer to be sure). For this reason, AFP-Arizona did not penalize Legislators or the Governor on its 2011 Legislative Scorecard: the tax existed before, and the new legislation was merely helping taxpayers comply.
The Legislature and Governor also instituted an amnesty for taxpayers who had violated (knowingly or not) the provisions of the Arizona use tax from 2004 to 2009. Arizona Republic tax columnist Russ Wiles explained how this would work in his June 3, 2011 column:
If you’re behind in paying Arizona income taxes, take note: The state will offer a partial amnesty later this year.
From Sept. 1 through Oct. 1, delinquent taxpayers who file their returns and pay the tax owed from prior years can benefit from penalty waivers, reduced interest rates and relief from criminal prosecution. The amnesty applies to income, use and a few other types of taxes for years 2004 through 2009.
The amnesty was authorized by lawmakers in April.
What they did wrong
The amnesty was not a bad thing, either. However, we’re guessing that 99.5 percent of the delinquent taxpayers (i.e., you and all of your neighbors who buy products online from retailers who don’t charge sales tax) had no knowledge of the one-chance amnesty in September of 2011. Your AFP-Arizona director is fairly close to the tax and legislative game, and he missed it, learning about the amnesty only recently when he read Russ Wiles’ column while preparing his 2011 taxes.**
By deciding suddenly to step up enforcement of an obscure provision of tax legislation, and by offering citizens a narrow and poorly-publicized window for amnesty, the Arizona Legislature and Gov. Brewer have effectively turned hundreds of thousands of Arizonans into tax criminals–or at the very least, cemented their status as tax criminals. Even if actual prison time is a remote possibility, the fines involved could be substantial: even $10 in unpaid use taxes could result in hundreds of dollars of compounded interest and penalties over the course of several years.
In past centuries, to protect citizens from such abuses, the Anglo-American common law developed the doctrine of mens rea, which meant that a person had to knowingly violate the law in order to be considered a criminal. And despite the helpful decision in Cheek v. United States, modern America tax legislation in practice is Neronic–ignorance of the content of absurdly complex and obscure legislation is no excuse, and ignorance will not necessarily shield taxpayers from harassment by tax-collection bureaucracies.
For Liberty, Tom
Americans for Prosperity
*The legislation was pushed primarily to level the playing field for big-box stores and other retailers in Arizona who
**For the record, your AFP-Arizona director has recently gone to his Amazon.com account to request an accounting of past purchases, and can find no items before 2011. Being a policy nerd, most of his book purchases are done through 501c3 tax-exempt educational organizations. He is reporting the 2011 purchases on his 2011 tax return (resulting in a whopping $3 in unpaid sales taxes), using the helpful declaration line instituted last year by the Arizona Legislature and Governor…