(updated Dec. 18, 2017)
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
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
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
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. 143-1 through 144-1.
VI. §§ 143 and 144 of the Revenue Act of 1936, 49 Stat. 1648, ch. 690, and Regulations 94, Arts. 143-1 through 144-2.
VII. §§ 143 and 144 of the Revenue Act of 1938, 52 Stat. 447, ch. 289, and Regulations 101, Arts. 143-1 through 144-2.
VIII. §§ 143 and 144 of the Internal Revenue Code of 1939, 53 Stat., and Regulations 103, Arts. 19.143-1 through 19.144-2.
More later after students learn the above.