TAX LAW

the body of rules under which the public authority has a claim on taxpayers, requiring them to transfer to the public authority part of their income or property. Tax law is concerned only with the legal aspects of taxation, not with its financial, economic, or other aspects. Tax law falls within the domain of public law as distinguished from private law. International tax law is concerned with the problems arising when an individual or corporation operates and is taxed in several countries. The development of comprehensive systems of tax law is a recent phenomenon. The power to impose taxes is generally recognized as a right of governments and is commonly found specified in constitutions. The limits to the right of the public authority to impose taxes are, in democratic systems, set by the legislature. The fundamental requirement is that the rights of the tax administration and the corresponding obligations of the taxpayer be specified in the law. The implementation of the tax laws is generally the province of the executive power. In many countries, tax legislation, once enacted, cannot be nullified by the courts on the ground that it is in opposition to constitutional principles, a chief exception being the United States, where the principle of judicial review is firmly established. There are certain limitations on the taxing power of the legislature. There must be at least a minimum connection between the subject of taxation and the taxing power. The extent of income-tax jurisdiction, for example, is essentially determined by two criteria: the residence of the taxpayer and the source of his income. Taxes other than income taxessuch as retail sales taxes, death taxes, registration fees, and stamp dutiesare imposed by the authority (national or local) on whose territory the goods are delivered or the taxable assets are located. Another limitation is that the same tax may not be imposed twice on the same person on the same ground. Taxes are generally not levied retroactively. A common limitation on the taxing power is the requirement that all citizens be treated alike. Aside from these constitutional, traditional, or political limitations, there is no restraint on the power of the legislative authority to determine the object, the rate, and the manner of administration of a tax. The problem of double and concurrent taxation by overlapping governmental authorities has become increasingly important, particularly in international law. International tax law has two parts. One consists of the provisions of internal tax law whereby national taxes are made applicable to nonresidents and to facts or situations located outside the frontiers. The other part consists of a growing number of international agreements, mainly bilateral ones, designed to prevent double taxation. Problems of internal double taxation exist in federal countries where provincial legislatures may tax all income arising in the province, whether received by residents or nonresidents, or all income received by residents, whether arising within or outside the province. When two or more countries form a customs union (free-trade zone), as have the members of the European Community (Common Market), they agree to establish a unified economic and financial market. In tax terms, this means the abolition of all tax (and other) discriminations and distortions. Administration of the tax law is the responsibility of the executive power. The levying of taxes can be divided into three successive phases. The first is assessment, or the definition of the amount subject to taxation under a particular statute. With the income tax, for example, the taxpayer submits a tax return providing financial and other information. Assessing officials have extensive powers in determining the amount subject to taxation. The taxpayer has the right to appeal the interpretation of the law if he believes that the assessing official is wrong. The second phase is computation, or calculation. In the self-assessment method the liability for income tax is determined by the taxpayer. Many countries provide for prepayment of withholding tax on wages, dividends, and other income. The third phase is enforcement. If the taxpayer fails to pay within a legally prescribed period, the competent tax office undertakes to collect the amount due together with interest or penalty charges. Various civil and criminal penalties are prescribed by law for violations of tax laws. body of rules under which a public authority has a claim on taxpayers, requiring them to transfer to the authority part of their income or property. The power to impose taxes is generally recognized as a right of governments. The tax law of a nation is usually unique to it, although there are similarities and common elements in the laws of various countries. In general, tax law is concerned only with the legal aspects of taxation, not with its financial, economic, or other aspects. The making of decisions as to the merits of various kinds of taxes, the general level of taxation, and the rates of specific taxes, for example, does not fall into the domain of tax law; it is a political, not a legal, process. Tax law falls within the domain of public lawi.e., the rules that determine and limit the activities and reciprocal interests of the political community and the members composing itas distinguished from relationships between individuals (the sphere of private law). International tax law is concerned with the problems arising when an individual or corporation is taxed in several countries. Tax law can also be divided into material tax law, which is the analysis of the legal provisions giving rise to the charging of a tax; and formal tax law, which concerns the rules laid down in the law as to assessment, enforcement, procedure, coercive measures, administrative and judicial appeal, and other such matters. The development of tax law as a comprehensive, general system is a recent phenomenon. One reason for this is that no general system of taxation existed in any country before the middle of the 19th century. In traditional, essentially agrarian, societies, government revenues were drawn either from nontax sources (such as tribute, income from the royal domains, and land rent) or, to a lesser extent, from taxes on various objects (land taxes, tolls, customs, and excises). Levies on income or capital were not considered an ordinary means for financing government. They appeared first as emergency measures. The British system of income taxation, for example, one of the oldest in the world, originated in the act of 1799 as a temporary means for meeting the increasing financial burden of the Napoleonic Wars. Another reason for the relatively recent development of tax law is that the burden of taxationand the problem of definite limits to the taxing power of public authoritybecame substantial only with the broadening in the concept of the proper sphere of government that has accompanied the growing intervention of modern states in economic, social, cultural, and other matters. Additional reading Among legal publications specializing in taxation are The Tax Lawyer (quarterly); and Taxes (monthly). Proposals for tax reform and legislative, judicial, and regulatory developments in the United States are reported in Tax Notes (weekly). Charles E. McLure, Jr.