Week in Insights: The Power to Tax Is the Power to Destroy

Curated by Daniel Xu

In McCulloch v. Maryland, Chief Justice John Marshall held for a unanimous court that individual states couldn’t tax the federal government. He reasoned that the power to tax involves the power to destroy.

Since then, governments have wielded this power through “sin taxes” on soft drinks, tobacco, alcohol, gambling, and more. There’s even a federal tax on tanning salons.

Sin taxes aim to discourage individuals from using a good or service and to compensate society for the deemed social ills or costs of that good or service. The tanning salon tax originates from the Affordable Care Act, based on the view that tanning increases the risk of skin cancer, which costs society money in the form of treatment.

This week, California enacted an excise tax on firearms and ammunition in addition to the existing federal tax, becoming the first state in the nation to do so. The revenue generated will fund general gun violence prevention initiatives, increased school safety, research, and education.

More state governors likely will turn to tax policy in the coming years to exert influence on certain market sectors. As political polarization and questions of constitutionality make it increasingly difficult to pass legislative bans or restrictions on guns—or other politically charged issues such as cannabis or fossil fuels—we may see more state and federal action enacting “soft” bans.

A tax can destroy, but it also can contribute to reform, education, and progress. Here at Bloomberg Tax, we’ll keep an eye on the initiative in California and any subsequent state actions that may follow.

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Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social

A tanning bed is pictured at a salon in Madrid, on Aug. 25, 2015.

Federal Insights

An infusion of congressional funding into the IRS is fueling a renewed compliance effort that targets high-wealth individuals and corporations, says former IRS Commissioner Charles Rettig.

Guylaine Saint Juste, CEO of the National Association for Black Accountants Inc. and Rick Reisig, chair of the National Association of State Boards of Accountancy, argue for and against a change in CPAs’ 150-hour education mandate.

House Republicans questioning the political speech of tax-exempt groups should acknowledge the public interest such groups serve and ease the free speech restrictions on them, says BakerHostetler’s Alexander L. Reid.

There are broad possibilities around generative AI, and it’s here to help law firms operate. Cleary Gottlieb’s Michael Gerstenzang and Sixth Street’s David Stiepleman outline how law practices need to rethink their judgment and experiences with AI.

A plan to give companies more flexibility to obtain clean energy tax credits seems to acknowledge the difficulty in meeting prevailing wage and apprentice requirements, say K&L Gates’ Marty Pugh and France Beard Johnson.

Monisha Santamaria, Natalie Tucker, and Daniel Winnick of KPMG US’s Washington National Tax practice explain why corporations should pay attention to Treasury’s latest guidance on the corporate alternative minimum tax.

CPA firms need to tread carefully when moving fast to grow an auditing practice to accommodate clients that seem to attract extra regulatory attention, whether it’s about SPACs, crypto, or cannabis, says accounting professor Michael K. Shaub.

While a federal government shutdown would affect operations at the IRS and US Tax Court, it doesn’t pause deadlines for filings and payments, most of which can be done electronically, says EisnerAmper’s Miri Forster.

Global Insights

Abe Zhao, Frank Pan, and Ivy Tan say that multinational enterprises considering restructuring their supply chains in China should prepare a robust strategy to defend their tax, transfer pricing, and customs positions.

The new transfer pricing rules in Malaysia require more detail and indicate stricter and more challenging compliance requirements for taxpayers, Irene Yong of Shearn Delamore & Co. says.

Jeffrey Tebbs and Caroline Reaves of Miller & Chevalier Chartered explain the substantive and procedural differences between a traditional treaty and a tax relief bill aiming to reduce obstacles to cross-border investment.

Columnist Corner

The IRS has issued Notice 2023-63, which clarifies that most expenses related to software development will need to be amortized rather than expensed in the current year. In this week’s Technically Speaking, Andrew Leahey writes that this could harm innovation and add a legal gray area.

Career Moves

José Pablo González has joined Dentons as a tax partner in the Costa Rica office.

Suzanne C. Farley, Jill K. Ernst, and Joanne J. Lue have joined Hopkins & Carley as part of its family wealth and tax planning practice in Redwood City, Calif.

Marin Brown has been promoted to managing partner at Grant Thornton in the Prairies region of Ontario, Canada.

Wesley Boldewijn has been appointed to partner and co-head of the Europe technology, media, and telecommunications group of Dentons in Amsterdam.

Christine Gunia has been appointed acting leader of the Public Company Accounting Oversight Board’s registration and inspections division.

Megan Whitlock has joined Schneider Downs as part of its tax shareholder group in Dallas.

If you are changing jobs or being promoted, let us know. You can email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team.
*Note: Your Bloomberg Tax login is required to access Tax News.

• State revenue agencies are grappling with a shortage of auditors, forcing department heads to rethink hiring strategies and pay closer attention to the cases they do pursue with fewer resources on hand.
• Massachusetts lawmakers approved significant tax changes, transitioning the corporate income tax to a single sales factor apportionment formula, lowering short-term capital gains taxes, and addressing a loophole on a surtax for high-income taxpayers.
• Federal policymakers are closely monitoring the US Supreme Court’s response to a constitutional challenge to the “transition tax,” but so are their state counterparts. Depending on the breadth of the court’s eventual ruling, states risk losing critical authorities to raise revenue and administer features of their tax codes.
• A bipartisan group of House lawmakers reintroduced a bill aimed at extending the investment and deferral window for opportunity zones through the end of 2028, while adding new reporting requirements.

Athletes make their way to the starting line in front of the Boston city skyline during the 55th Head of the Charles Regatta on Oct. 20, 2019.

Photographer: Maddie Meyer/Getty Images

Tax Journals

Tax Management International Journal

The OECD Amount B transfer pricing unadjusted operating margin model is flawed when applied to mining multinationals, and a capital adjusted Berry ratio model should be used instead, says economist Harold McClure.

Tax Management Memorandum

The Employee Retirement Income Security Act needs to catch up with the information age by identifying plan data as a plan asset, resolving the current ambiguity on that point that has led courts to decide otherwise, and developing the related fiduciary duties, argues Michael Schloss of the Wagner Law Group.

*Note: Your Bloomberg Tax login is required to access Tax Journal articles.

Talking Tax

On this episode of Talking Tax, Carin Giuliante, chair and CEO of Deloitte Tax, spoke to Bloomberg Tax & Accounting senior reporter Amanda Iacone about new IRS regulations for cryptocurrency assets, how artificial intelligence is reshaping the tax practice, and the firm’s ongoing commitment to diversify and support its workforce.

Attention Law Students

Do you have an original take on the law—but you’re not a lawyer yet? Our student writing competition is the perfect opportunity to show off your work.

We invite students to choose an area of law and technology and describe how it might be tested in courts, update past practices, or force a rethinking of the legal landscape.

We’ll publish the winning entry in December, and the student with the winning entry will get a swag bag of Bloomberg Industry Group products.

Our Wish List

The NFL season has started, and the NBA’s opening game isn’t far off. For October, we’re calling for article submissions on tax aspects of sports, gaming, and betting. We’d especially welcome analysis on gambling rules and athlete salaries.

If you have an interesting, never-published article for publication, you can contact our Insights team by email at TaxInsights@bloombergindustry.com.

Our Team

We talk about tax a lot. But there’s much more that you might hear us talking about if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Katharine Butler (Acquisitions Manager): “My Mum, Your Dad,” which follows a group of single parents who have been nominated by their grown-up children for a second chance at love. It’s sometimes quite moving and cringeworthy at the same time.

Reading
Daniel Xu (Content Editor): Albert Camus’ “The Myth of Sisyphus.” I enjoyed his most well-known novel, “The Stranger,” so I’m diving into his nonfiction, too.

Listening
Melanie Cohen (Content Editor): “The Buildup,” a monthly podcast series following decorated marathoner Molly Seidel’s road to the 2024 US Olympic Marathon Trials.

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