On the meaning of “tax”

Question:

Background:

On the meaning of “tax”

Mark Bowler-Smith* and Huigenia Ostik**

Abstract

Common–lawjurisprudencecharacterisesataxasacompulsorypaymentimposedbyapublicbodyforapublicpurposeundertheauthorityofthelegislature.Whileuseful inmanysituations— and despite judicial statements that a tax is not a penalty, fine or user charge — this understanding of a tax fails to make clear how some other transactions should be classified. This is arguably because certain elements of the common-law characterisation are lexically inappropriate, logically redundant and inconsistent with extant decisions. This article proposes an alternative. It argues that a tax is a compulsory transfer of value imposed primarily for a redistributive purpose. This definition is purposive (it lends insight into the appropriate aims of taxation), universal (the focus on redistribution distinguishes taxes from other payments to government) and practicable (it promotes fiscal transparency and clarifies the actual financial contribution each and every natural and legal person makes to the public finances).

* Senior Lecturer in Tax Law, University of Auckland.

** Lecturer in Tax Law, University of Auckland.

This article was accepted for publication on 1 June 2018.

601

“[T]here is no reason in principle why a tax should not take a form other than the exaction of money or why the compulsory exaction of money under statutory powers could not be properly seen as taxation notwithstanding that it was by a non-public authority or for purposes which could not properly be described as public”.1

1. Introduction

Over the past few years, a number of companies have come under scrutiny because of the amounts of headline corporate income tax that they pay. Understandably, these companies have fought back. One important challenge that deserves attention and analysis is the claim that they contribute to society and the economy in more ways than simply paying corporate income tax. Companies and others may well be making

contributions that, while not popularly conceived of as taxes, should nonetheless be

classified as such.

Classifying a particular transaction — in the sense of handing or transferring something over — as a tax can be problematic. For a start, there is a prevailing uncertainty as to the precise legal meaning of the word “tax”. In the words of one Chief Justice, the decision of “whether an exaction of money or the imposition of some other financial obligation is a tax involves an exercise in characterisation”.2 While it is a reasonably simple exercise to identify a “statutory tax”, such as an income tax or a value-added tax — because the elements of the charge are often laid out in a tax statute — the identification and classification of other transactions or “financial obligations” that have the same substantive effect on public finances is less straightforward.3 It is only when we can satisfactorily define what a tax is and classify these other transactions that we can understand just what kind and how much of a contribution natural and other legal persons are really making to the society in which they are active or are based.

In order to arrive at a satisfactory definition of “tax”, this article undertakes both a positive and normative analysis of the current system of classifying such transactions as found in the jurisprudence of the highest common-law courts. The structure of this article follows the features of a tax that are most commonly found in those cases:

• procedural features:

° imposed under the authority of the legislature; and

° enforceable by law; and

• AirCaledonie International v Commonwealth [1988] HCA 61 at [6].
• Gleeson CJ in Lutonv Lessels [2002] HCA 13 at [10].
• NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2583 (“Congress

cannot change whether an exaction is a tax or a penalty for constitutional purposes simply by describing it as one or the other”).

• substantive features:

° payment;

° compulsory;

° imposed;

° by a public body; and

° for a public purpose.

It is through the analysis of the abovementioned features that the essential prerequisites of a tax are identified and fashioned into what is intended to be an exhaustive definition of tax, which is a departure from the “normal” judicial process of classification. The essential difference between the traditional approach and the definition proposed by this article is that the latter contains the essential prerequisites of a tax, whereas the courts have understandably tended to classify payments on the basis of the facts before them, rather than articulate an exhaustive definition.4

This article proposes that a tax can be defined as a compulsory transfer of value imposed primarily for a redistributive purpose. Most of the literature refers to “payments of tax”. By focusing on the idea of a payment, a range of constructive receipts, losses and expenses are potentially ignored. By specifying “transfer of value”, a wider range of financial gains and losses are accounted for. For example, the forfeiture of assets by way of making good a tax debt should be classifiable as a tax.

While the literature has included redistribution as one of the objectives of taxation, it is quite novel to assert that redistribution is a defining characteristic of a tax.5 To suggest that a transfer of value needs to have “redistribution” as a primary purpose serves to automatically exclude payments where the primary or underlying intention is otherwise. For example, the primary policy rationale behind a fine is to disincentivise certain forms of behaviour; thus, a fine is not a tax. In practice, a

redistributive purpose means that either the intention or effect of the transfer is to

make net revenue available for redistribution, either by way of direct government

transfer or more indirectly.

It is submitted that the adoption of this definition could lead to some not insignificant insights into: the distinction between a tax and other transfers of value to, or on behalf of, government; the appropriate aims of taxation; and what payments made to a foreign government constitute taxes, thereby aiding the investigation by domestic courts and revenue authorities into the availability of tax credits in relation to those payments. Having a clear understanding of the true nature of a tax will also help inform public opinion about the real financial contribution that each and every one

of us makes to public finances.

• See Gleeson CJ in Lutonv Lessels [2002] HCA 13 at [10].
• For an interesting discussion on using “distribution” versus “redistribution”, see EO Wright (ed.),

Redesigning distribution (London, New York: Verso, 2006) at ix.

2. Background

A clear statutory definition of “tax” would certainly be a good starting point for an investigation into the nature of a tax. However, most common law jurisdictions have no such definition (eg the UK, Canada and the US).6 For those that do, they tend to be less than helpful when it comes to providing an exhaustive and universally

applicable definition.7 Accordingly, it is necessary to look to the courts to try to establish the meaning of the term.

On the occasions that the issue of whether a particular transfer of value constitutes a tax has been of direct concern in a case before the supreme courts, they have tended to resile from laying down an exhaustive definition.8 The UK House of Lords

had occasion in TotalNetwork SL v RCC (Total) to consider whether a particular

payment was a tax and was presented with an argument to that effect by counsel for

the defendants. However, their Lordships effectively sidestepped the issue by turning instead to the decision-making process. The only judicial reference to the issue was the statement by Lord Scott of Foscote that:9

“… there is, in my opinion, nothing whatever in the Bill of Rights point. It is true that Total are not taxable under the statutory VAT scheme in respect of any of the pleaded transactions, but the claim against Total is not a claim for tax. It is a claim for damages, for loss, caused by the fraudulent conspiracy.”

Another example of judicial sidestepping is the judgment of Justice Thurgood Marshall in the US Supreme Court case of National Cable Television Association v US (NCTA), where he criticised the court’s “attempt to draw metaphysical distinctions between a ‘fee’ and a ‘tax’” and focused instead on ascertaining whether the charges

were authorised by Congress.10

• The US legislature has been urged to draft a statutory definition of tax: Headlee Blue Ribbon Commission, A report to Governor John Engler (Lansing, Michigan: Office of the Governor, 1994), 26–31.
• For example, s YA 1 of the the New Zealand Income Tax Act 2007, defines “tax” as income tax imposed on taxable income and s 3 of the New Zealand Tax Administration Act 1994, defines “tax” as “a tax, levy or duty imposed by a tax law, regardless of how the tax, levy or duty is

described”. These definitions are seemingly limited to the functionality of the Acts to which they are attached, ie imposing and collecting tax, respectively.

• See Lower Mainland Dairy Products Sales Adjustment Committee v Crystal Dairy Ltd [1933] AC 168 (Crystal Dairy) at 176 per Lord Thankerton (PC); Revenue and Customs Commissioners v Total Network SL [2008] EWCA Civ 39 at 59 (CA); and Central & Southern Motor Freight Tariff Association v United States 415 US at 352 per Justice Thurgood Marshall (dissenting). See the discussion in M Graven, “Recoupment of regulatory costs through user fees” 55 George Washington Law Revue, 1000, 1986–1987.
• TotalNetwork SL v Revenue and Customs Commissioners [2008] UKHL 19 at [59].
• NationalCable Television Association v US and FCC; Federal Power Commission v New England Power Company (1974) 415 US 352.

In an earlier House of Lords case, Attorney‑General v Wilts United Dairies Ltd (Wilts), the court was required to consider whether a payment for a license made to the Food Controller per gallon of milk purchased from certain countries was unconstitutional in that it had been imposed without parliamentary sanction. The leading judgment

confirmed that a payment must be imposed with the authority of the legislature to be classified as a lawful tax. However, it shed no more light than this on the nature of a tax. The following dicta arguably highlights the poor state of the distinction between the various payment obligations imposed by government:11

“… however this payment may be clothed, in the end it must remain a payment which certain classes of people were called upon to make for the purpose of exercising certain privileges and the result is that the money so raised can only be described as a tax.”

While not forming part of the ratio nor expressly referring to a payment of tax, what does emerge from Wilts is the idea that the focus of any classification of a given payment should be the use for which it is to be put. Thus, affirming the dicta of Atkins

LJ in the Court of Appeal decision (that a tax is “a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue”).12

Perhaps the most influential and extensive common-law discussion of the prerequisites of a payment of tax is found in a Canadian Privy Council case, Lower Mainland Dairy Products Sales Adjustment Committee v Crystal Dairy Ltd (Crystal Dairy), which was decided over a decade after Wilts. The court in Crystal Dairy was required to consider whether certain adjustment levies payable on the sale of liquid milk were taxes, and

if so, whether they were direct taxes. The levy was found to be a tax on the basis that it was:

• compulsorily imposed;
• enforceable by law;
• imposed by a public authority; and
• imposed for a public 13

These criteria were not considered to provide an “exhaustive definition” of a tax.14 Instead, they focus on the need to identify certain positive attributes of a payment. Lord Thankerton acknowledged their similarity to those found in the earlier Canadian

Supreme Court case of Lawson v Interior Tree Fruit and Vegetables Committee of Direction (Lawson). In Lawson, Duff J referred to the fact that the levies in question were:

• Attorney‑General v Wilts United Dairies Ltd (1922) 38 TLR 781 at 848 per Lord
• Attorney‑General v Wilts United Dairies Ltd (1921) 37 TLR 884 at
• Crystal Dairy, fn 8 above, at
• Crystal Dairy, fn 8 above, at

• enforceable by law;
• imposed under the authority of the legislature;
• imposed by a public body; and
• made for a public 15

To these positive criteria, a number of negative criteria have been added, particularly by the Australian High Court. Dawson and Toohey JJ in AustralianTapeManufacturer’s Association Ltd v The Commonwealth (Australian Tape) included “not a payment for services rendered” and that is must “not be by way of a penalty or be arbitrary”.16 In AirCaledonie International v Commonwealth (AirCaledonie), the court stated that:17

“… a charge for the acquisition or use of property, a fee for a privilege and a fine or penalty imposed for criminal conduct or breach of statutory obligation are other examples of special types of exactions of money which are unlikely to be properly characterized as a tax.”

Negative criteria have become important given that the positive features identified above do little to separate payments of tax from other payments to government, such as a penalty.18 Another approach, which can be seen in the US Supreme Court, also in relation to penalties, is defining tax in contradistinction with another payment.19 However, this article argues that it is possible to formulate a definition of tax that renders the need for negative criteria or alternative definitions obsolete.

3. Procedural features

Possibly the most important issue with “imposition under the authority of the legislature” and “enforceability by law” as defining features of a tax is that they relate to procedure rather than substance. By relying on such procedural features, all the courts are doing is distinguishing between a lawful and an unlawful tax. Accordingly, if a tax is not authorised by statute, then it is unconstitutional and therefore unlawful:20

• Lawson v Interior Tree Fruit and Vegetables Committee of Direction [1931] C.R. 357 at 362.
• AustralianTapeManufacturer’sAssociation Ltd v The Commonwealth [1993] HCA 10 at [24].
• AirCaledonie International v The Commonwealth [1988] HCA 61 at [6].
• See Isaacs J in R v Barger (1908) 6 CLR 41 (when distinguishing a penalty and tax, he identified the

latter as “a contribution to revenue irrespective of any legality or illegality in the circumstances upon which the liability depends”).

• See Scalia J in NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566

at 2651 and the other Supreme Court cases cited therein (“a tax is an enforced contribution to provide for the support of government; a penalty … is an exaction imposed by statute as punishment for an unlawful act”).

• Bowles v Bank of England [1913] 1 Ch 57 at 84–85.

“By the statute of 1 William and Mary, usually known as the Bill of Rights, it was finally settled that there could be no taxation in this country except under authority of an Act of Parliament.”

If it is authorised by the supreme executive legislature, it is still open to the courts to examine whether the primary legislative Act itself, any secondary legislation, or any discretions conferred by said instruments are lawful or lawfully exercised, which is where the next step — enforceable by law — enters the fray. It is ultimately for the courts to determine whether any exercise of state power is legitimate or not, irrespective of its fundamental nature:21

“… there can be no question that it is the responsibility of this Court to enforce the limits on federal power by striking down acts of Congress that transgress those limits.”

Raising taxes is closely associated with the exercise of sovereignty. Therefore, it is understandable why these procedural requirements are thought to be so important that they merit inclusion in the definition of a tax. However, it is arguable that these procedural elements add nothing to our understanding of the nature of a tax. Rather, their function is to suggest that a transfer of value that is a tax according to more substantive criteria is not a lawful tax if it has not been implemented or exercised in accordance with procedural rules; that it is an unlawful tax because the procedures in place were not followed.

Should a definition of “tax” include elements pertaining to its procedural propriety? It is certainly arguable that a definition of the word “tax” should take account of both process and substance. One argument in support of this view is that a transfer of value is either a tax or it is not a tax; and that to seek to separate procedural and substantive elements is to fail to take account of some of the most distinctive features of a tax: that it must be lawfully imposed, enforceable and constitutes a legitimate exercise of state

power. However, as has been seen in some of the cases, not separating procedural and substantive elements may lead to a given tribunal only focusing on the lawfulness and

legitimacy of the transfer at issue, rather than considering its full, true nature.

Accordingly, an alternative view is that tax should only take account of substantive matters and a secondary descriptor should be used to identify, for example, whether that transfer or payment is lawfully imposed, enforceable or a legitimate exercise of state power. This article prefers this approach. Separating procedural and substantive

elements means not confusing procedural and substantive law.22 In other words,

• NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2579.
• See, though, SA Gard, “Procedure by court rules: recapturing by the courts of a surrendered authority”, (1956) 5(1) University of Kansas Law Review 42 at 54 (who refers to “the twilight zone between procedural and substantive law”).

it is submitted that whether a tax is lawful, enforceable or legitimate is a separate consideration from whether the payment or transfer at issue is a tax.

The mischief of these procedural, and ultimately constitutional, features is to prevent any entity making imposts ultra vires.23 The fact that a transfer of value is being compulsorily imposed should be enough to alert any enquirer that power — be it state, market or other — is being exercised and that a financial burden is being “imposed

upon the subjects” of a country.24 As to the lawfulness or legality of the impost: as with any transaction, there is a branch of the law dedicated to its examination. For example, with regards the exercise of state power, there is administrative law and the judicial review process.

To include in a definition of a tax that it must be authorised does nothing to establish its nature or inherent quality; and is arguably redundant for the purposes of classification. Perhaps, therefore, a more purposive (less procedural) approach is

more appropriate. Such an approach is certainly more in keeping with that in Wilts

that the focus be on the use to which a payment of tax is put.

3.1 Imposed under the authority of the legislature

Notwithstanding its procedural nature, the idea that a tax must be imposed under the authority of the legislature raises at least two other specific issues. The first is whether it applies only to taxes or whether it applies more generally to other transfers of value made for the use of a public body. Many other such transfers, such as user charges, are authorised by the legislature for the purposes of their imposition. However, it is

unclear exactly what payments, other than taxes, require such authorisation:

“That levying money for or to the use of the Crowne by pretence of Prerogative without Grant of Parliament for longer time or in other manner than the same is or shall be granted is illegall.”25

“The rule of law that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except upon clear and distinct legal authority, established by those who seek to impose the burden, has been so often the subject of legal decision that it may be deemed a legal axiom, and requires no authority to be cited in support of it.”26

“[I]f an officer of the executive seeks to justify a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue),

• See E Barendt, Anintroduction to constitutional law (OUP, 1998), 21 (a constitution ultimately

concerns the restraint of power).

• Gosling v Veley (1850) 12 QB 328 at 407 per Wilde
• Art 4 of the Bill of Rights 1689.
• Gosling v Veley (1850) 12 QB 328 at 407 per Wilde

he must show, in clear terms, that Parliament has authorised the particular charge.”27

While it is to be assumed that the legislature in question is the supreme executive legislature, a second issue relates to the exact level of detail required. While “a money bill” may well authorise the pecuniary burden or charge, it is unclear what is sufficient to constitute “clear and distinct legal authority”. Does the scope of the tax need to be detailed or is it enough simply to confer discretion on an official or to permit the

use of secondary legislation? If, as in Total and NCTA, the emphasis is placed on more

procedural aspects for the purpose of characterisation, it is arguable that courts need

to be more prescriptive. But are such safeguards consistent with the veritable panoply of payments and transfers made to general government? It is arguably impractical in a modern state to require too much detail in the acts of the supreme legislature. Perhaps the need for legislative authority should be interpreted to mean there must be a clear delegation to an official or requirement for secondary legislation.

3.2 Enforceable by law

The idea that a tax must be enforceable by law has sometimes been interpreted non-procedurally and as a substitute for the substantive requirement that a tax be compulsory. For example, in the Canadian case of Lawson, Duff J chose not to refer

to compulsion and only referred to enforceability.28 A similar conclusion might be reached when considering the Michigan Supreme Court in Alexander Bolt v City of Lansing (Bolt), which held that the specifics of the enforcement procedure point towards a particular payment being a tax.29 By a majority of 4:3, it was held that the

fact that the payment could be secured by placing a lien on property was a relevant (but not sufficient) factor in concluding that it was a tax. The decision suggests that the enforcement process that attaches to non-transfer may point towards the classification of a transfer of value as a tax. However, despite the use of the language of enforcement, the result of this case is that the payment was ultimately secured, thus making the payment compulsory.

4. The substantive features

4.1 Payment

The Oxford English dictionary defines payment as a “sum of money (or equivalent) paid or payable, esp. in return for goods or services or in discharge of a debt”. The concluding clause — “esp. in return for goods or services or in discharge of a debt” — connotes

• Attorney‑General v Wilts United Dairies Ltd (1921) 37 TLR 884 (CA) at 886 per Atkins LJ and

affirmed in the House of Lords.

• See Lawson, fn 15
• Alexander Bolt v City of Lansing (1997) 561 NW2d

a contractarian perspective (ie some form of bargain struck between the taxpayer and the state). However, the OECD defines a tax as an “unrequited payment”.30 One interpretation of unrequited “is that benefits provided by government are not normally in proportion to the payment”. A second “is that the government provides nothing in return to the person making the payment”.31 Thus, unrequited is a clear indication that there is no bargain, implicit or otherwise, between the payor and payee when it comes to taxation. The question is, though, why bother with the word payment at all if it connotes such a bargain?

A composite term that does the same job as the phrase “unrequited payment”, in that it eludes the contractarian connotation, is “transfer of value”. In the words of Doyle in relation to unjust enrichment:32

“[v]alue is transferred when one party gives another something of value but in return receives nothing or something of lesser value. An exchange of two things of equal worth does not, therefore, involve a transfer of value. A transfer of value is gratuitous … Value on this understanding is distinct from the external things that change owners in the course of a transaction.”

The fact that transfer value is inherently unrequited is probably why Buchanan uses the phrase “reciprocal transfer of value”.33

The unrequited element in “transfer of value” has at least two effects on our understanding of what constitutes a tax. First, in keeping with the literature, it negates the idea that the benefit theory of taxation is the ultimate justification for modern taxation. Like “unrequited payment”, the use of transfer of value does not deny that taxpayers receive benefits, it simply recognises that the benefits that they receive have no bearing on the amounts that they “pay”.34 Second, it tells us what a tax is not. It

• See OECD, Glossary of tax terms, available at oecd.org/ctp/glossaryoftaxterms.htm.

Accessed 17 August 2017 (“The OECD working definition of a tax is a compulsory unrequited payment to the government”). See, also, Intersecretariat Working Group on National Accounts,

System of national accounts 2008 (New York, 2009) at para 22.88 (“Taxes are compulsory

unrequited payments, in cash or in kind, made by institutional units to the general government exercising its sovereign powers or to a supranational authority”).

• M Bowler-Smith and H Ostik, “Towards a classification of the congestion charge as a tax”, (2011) 4 British Tax Review 487 at
• M Doyle, “Corrective justice and unjust enrichment”, (2012) 62(2) University of Toronto Law Journal 229 at
• JM Buchanan, “Rent seeking, noncompensated transfers, and laws of succession”, (1983) 26(1)

Journal of Law & Economics 71 at 72.

• For a relevant discussion of the place of benefit theory in modern tax theory, see M Bowler-Smith, “Can sovereign interests be aligned with international tax cooperation?” New Zealand Law Review (2017) Pt 2, 207 at 223 et seq, particularly 224–225: “[w]hile the benefit principle has

been largely ignored by the literature in recent times, the ability-to-pay principle has been near-universally in evidence in both theory and practice”.

suggests that a tax is not something that is paid in order to get something valued as much or more than the money (or money’s worth) that a taxpayer transfers. Rather, it suggests that a tax provides residual revenues to the “government”. Ultimately, this

points to a tax constituting a redistributive transfer value, given that the government

uses its revenue to provide goods and services to those who are based or active in, or

connected with, the state in question.35

One way of teasing out the idea that redistribution is a definitional element of “tax” is to contrast taxes with user charges, which are payments that seek to cover the cost to government of supplying consumable goods or services to the chargee.36 A user

charge is not a transfer of value because the intention behind the payment is that the payer gets what they pay for and in proportion to the amount that they pay (at least in so far as the existence of alternatives implies a market pricing mechanism). So, as a non-redistributive payment, a user charge is not a tax.

4.2 Compulsory

Many of the judgments from Canada, the United States and Australia, which have been more forthcoming in characterising taxes than the UK, view compulsion as a necessary component of a tax. This is also true of many non-judicial sources.37 The prevalence of the compulsory aspect of a tax has been described as being:38

• M Bowler-Smith and H Ostik, “Towards a classification of the congestion charge as a tax”, (2011) 4 British Tax Review 487 at 488, 502 and
• This expands on a definition found in D Duff, “Benefit taxes and user fees in theory and practice”, (2004) 54(4) University of Toronto Law Journal 391 at
• Some examples include: CF Bastable, Public finance, 3rd ed (London: Macmillan, 1917) at I.5

(“a compulsory contribution of the wealth of a person or body of persons for the service of the public powers”); JF Due, Government finance: economics of the public sector, 4th ed (Illinois: Irwin, 1970) at 73 (“a compulsory contribution imposed by a public authority, irrespective of

the exact amount of service rendered to the taxpayer, and not imposed as a penalty for any legal offence”); G Morse and D Williams, Davies principles of tax law, 4th ed (2000), p 3 (“a compulsory levy imposed by an organ of government for public purposes”); V Thuronyi, “Tax” in J Cordes, R Ebel and J Gravelle (eds), Encyclopedia of taxation and tax policy, 2nd ed (Washington DC: Urban Institute Press, 2005) at 375 (“compulsory contribution to government imposed in order to raise revenue”); and N Lee, Revenue law – principles and practice, 27th ed (Tottel Publishing, 2009) at 4 (“a compulsory levy … imposed by government or in the case of council tax by a local authority. Finally, the money raised should be used either for a public purpose or, if the purpose of the tax is not to raise money, it should aim to achieve social justice in the community”.

• SF Weston, Principles of justice in taxation (New York: Columbia University Press; 1903) at See also PalmOil Research and Development Board v Premium Vegetable Oil Sdn. Board, Federal Court of Malaysia, Civil Appeals No: 02-04-2002 (W) and 02-05-2002 (W) (“compulsion is an

essential feature of taxation”).

“… so dominant that the idea of compulsion has become a central feature in all of the definitions of a tax by the legist and the economist, the statesman and the financier.”

The adjective “compulsory” is derived from the verb “to compel”, which according to The Oxford English dictionary means “to urge irresistibly, to constrain, oblige or force a person to do a thing”. This is in keeping with Lord Sumner’s contention in the Canadian Privy Council case City of Halifax v Nova Scotia Car Works Ltd (Halifax) that the essence of a tax is that it is “imposed by superior authority without the taxpayer’s

consent, except insofar as a representative government operates by the consent of the people”.39 Not only does compulsion describe the dominance of the state over the taxpayer, but it also it implies that the payment of a tax cannot be avoided (ie an obligation or duty settles on the taxpayer) as a direct consequence of having been

imposed by the state. It does not, though, address the issue of when this obligation or

duty arises or settles on the taxpayer.

In order to try and identify the point in time that the taxpayer falls under an obligation to pay tax, Lord Dunedin’s suggestion in Whitney v IRC is useful:40

“[T]here are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed… Lastly, come the methods of recovery, if the person taxed does not voluntarily pay.”

If one accepts Lord Dunedin’s three stages, perhaps the question is better phrased not in terms of when the obligation arises, but whether it arises before or after the establishment of liability in respect of a particular tax. The importance of whether

it arises before or after the establishment of liability is the difference, respectively, between it being a moral or a legal obligation. If a taxpayer foresees what he considers to be a disproportionate tax burden, both persons and property can be shifted out of the taxing jurisdiction to avoid incurring a tax liability.41 To suggest that compulsion is somehow present before liability is established is therefore to suggest something akin to there being a moral duty to pay tax; that the taxpayer was under a moral obligation not to shift herself or her property out of the jurisdiction. On the other hand, to maintain that the compulsion only arises after the establishment of liability is to say nothing more than: the law can be enforced. Therefore, it is suggested that a compulsory payment is a payment that can be forced, rather than a payment that has an element of moral obligation attached to it.

• Per Lord Sumner in City of Halifax v Nova Scotia Car Works Ltd [1914] AC 992 at
• Whitney v IRC [1926] AC 37 at
• NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2600 (“imposition

of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice”).

That having been said, the compulsory criterion should be interpreted as more than just a “legal obligation” to pay. It should also include situations where there is no reasonable alternative but to make the payment (ie a lack of any real choice). Such a payment has been described as “effectively compulsory” in the Australian case

of AG(NSW) v Homebush Flour Mills Ltd, which discussed the situation where

commercial necessity dictated that the payment be made.42 However, it is arguable

that the adjective “effectively” is an unnecessary addition as the meaning of “compel” includes urging irresistibly, constraining and obliging a person to do a thing, as well as forcing them to do it. Thus, “compulsory” connotes a wide range of control, including situations where there is an absence of a legal obligation to pay.

It is not always an easy exercise to determine whether a transfer of value is compulsory or not. One approach, as seen in the US case of Bolt, is to examine the means available to the public authority to secure payment.43 This is consistent with the US approach of labelling taxes, in contradistinction to penalties, as enforced contributions;44 as

exactions where payment is forced.

Given the foregoing analysis, it is submitted that “compulsory” belongs squarely within any definition of tax.

4.3 Imposed

The Oxford English dictionary defines “impose” as:

“… lay on, as something to be borne, endured, or submitted to; to inflict (something) on or upon; to levy or enforce authoritatively or arbitrarily.”

Thus, the word “impose” denotes the exercise of some kind of power, particularly given the reference to submission. Whether it is state power or market power, “impose” connotes a one-sidedness, which is consistent with the tendency of non-judicial definitions to stress the fact that taxation is either not a quid pro quo arrangement or, if it is, that the amount of direct or indirect benefit to the taxpayer is unascertainable.45

• Attorney‑General (NSW) v Homebush Flour Mills Ltd. (1937) 56 CLR
• See fn 29
• See NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2651 and the other cases cited therein.
• See, for example, The OECD classification of taxes and interpretive guide, available at www

.oecd.org/tax/tax-policy/revenue-statistics-methodology-guide-and-classification-system.htm, accessed 17 March 2016; and S Smith, Taxation: a very short introduction (OUP, 2015), 4.

Whether the one-sidedness be thought of as unrequited or as connoting the immeasurability of the concordant benefit, the word “imposed” conveys well the idea that a tax is not by definition a consensual phenomenon.46

4.4 Public authority

Despite the fact that definitions in the non-judicial arena are more likely to describe the payment of a tax as one being made to government, the overwhelming majority of court judgments refer to public authority. In the public law arena, the relationship between these two “equivalent” expressions is revealed in the sense that public authorities are “bodies whose nature is governmental”.47 However, the idea of public authority also seems separate from the idea of general government as it explicitly refers to “bodies”. This separateness is further highlighted by the definition of a public authority for public law purposes as “an entity established by statutory provision that has functions of a public nature”.48

Whether one refers to general government or public authority, there are seemingly two functions that they have served in past definitions of a “tax”. The first is the idea that a payment must be made to a public authority. One of the earliest references

to taxes being payments given to public authorities is found in a 17-century English case, Brewster v Kidgill, where Holt SC explained:49

“… when ‘taxes’ are generally spoken of, if the subject matter will bear it, they shall be intended Parliamentary taxes given to the Crown.”

However, there is seemingly no sense in which a payment must actually be made to the Crown, general government or a public body. One could fully imagine a payment being made to a charitable body or a health insurance provider as a mandated, but permissible, alternative to a payment to a revenue authority, but it nonetheless constitutes a tax for all intents and purposes. Thus, there is arguably no real need for a transfer to be made to any particular body or institution for it to constitute a tax.50

The second function of public authority in past definitions is the idea that a payment of tax is levied or imposed by a public authority. However, this sense is somewhat

• As a direct result of jurisdictional competition, some analyse legal rules no longer as being imposed by the state on its addressees, but as one offer among others in a “law market”. See, for

example, E O’Hara and L Ribstein, The law market (OUP 2009).

• ParochialChurch Council of the Parish of Aston Cantlow and Wilmcote with Billesley, Warwickshire v Wallbank and another [2003] UKHL 37 at [7].
• PJB v Melbourne Health (Patrick’s case) [2011] VSC 327 (Supreme Court of Victoria) at [111].
• Brewster v Kidgill (1697) 12 166 at 1239.
• NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2597 (“the shared

responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance”).

overshadowed by the idea that a tax is a payment that is imposed under the authority of statute. Indeed, the role of government or public authority when characterising a transfer of value as a tax has an uncertain pedigree. It is not altogether clear the extent to which the requirement that a payment must be imposed by government or a pubic authority is distinguishable from the requirement that it must be imposed for a public purpose (see the next section). This ambiguity has tended to erode the importance of public authority as a defining feature of a tax in the case law. For example, the majority

in Australian Tape suggested that it was not “essential to the concept of a tax that the exaction should be by a public authority” because it was “scarcely to be contemplated

that the character of the impost of a tax depends on whether the authority is a public authority” but that the “character of the authority concerned may bear upon the purposes on which moneys raised are to be expended are themselves public”.51 This judgment further excludes the need to include public authority/body as part of a definition by holding that a levy was a tax notwithstanding that it was received by an independent body.

4.5 Public purpose

The link between taxation and public purpose is a strong one.52 This is particularly so given its constitutional importance in the US at both the state and federal level: that taxes may only be raised for public purposes.53 This understanding of public purpose places our definitional criteria on the expenditure side of the fiscal equation and not on the revenue-raising side. This means that, in order to establish whether a particular contribution, made by an individual or a firm, is a tax, we need to look at the underlying purpose of the imposition of that levy either ex ante or ex post.

Ex ante implies that there is a discernible intention behind the imposition of a particular levy. This intention can, of course, be evidenced in the usual way of examining the documents, discussions and debates surrounding the imposition of the levy. However, it might also be the case that the original or ostensible intent may be challengeable on the basis of the (ex post) effect of the payment. For example, if the intention of a toll is to cover the operating and maintenance costs of a bridge, but the toll is so successful that it results in net revenue that is available for other public works, then it would seem to be clear that, notwithstanding the original intent, that toll should be classified as a tax and not a user charge. Furthermore, it is submitted that this method of identifying the purpose of a payment is independent of the precise nature of the purpose behind a particular levy. This is all to the good, given that public purpose, arguably, has limited utility as a practicable definitional criteria. This is

• See AustralianTape, fn 16 above at [13]. See also P Johnston, “A taxing time: the High Court and the tax provisions of the Constitution”, (1993) 23 University of Western Australia Law Review. 362 at
• Jones et al v City of Portland (1917) 245 US 217 at 221 (“It is well settled that moneys for other than public purposes cannot be raised by taxation”).
• BP McAllister, “Public purpose in taxation” (1930) 18 L. Rev. 137 at 139.

highlighted by the suggestions that there is “no precise definition of public purpose”54 and that it should not be construed “in a narrow or restrictive sense”.55

One seemingly productive way of thinking about public purpose is as a synonym of “governmental purpose”, in that “the purpose must be performed by the state in the exercise of its governmental functions”.56 It arguably follows from this understanding of public purpose that the relevant inquiry is whether the essential purpose is to obtain a public benefit, as opposed to a private one.57 This is because public benefit epitomises the functions of both the public sector and the non-profit sector, whereas private benefit — the contrary idea — epitomises the realities of the private sector. Accordingly, a public purpose is one that does not result in the enrichment of particular persons; it is a “purpose affecting the inhabitants of the state or taxing district as a community, and not merely as individuals”.58

The line to be drawn between public and private was at issue in the following two Supreme Court decisions. The first being Massey‑Ferguson Industries Ltd v Government of Saskatchewan, where Laskin CJ delivered the majority judgment and refused to classify a payment as a tax because, in addition to the money not going into

the consolidated revenue fund, “its beneficiaries and obligors are circumscribed by the particular activity or enterprise in which they are engaged”. This was in spite of the fact that the scheme was “a public one, created under a public statute”.59

The second case is Australian Tape, which held that an expropriation from one group for the benefit of another was a tax. The majority thought the fact that the groups were identifiable could be said to render the purpose of the levy private and so on this basis, the levy be said not to be a tax.60 However, the court held that the money was imposed

in the public interest, notwithstanding that it concerned the interests of only two groups and that the purpose and effect of the levy was to find “a solution to a complex problem of public importance” which “is of necessity a public purpose”. The reference to public interest and public importance was arguably a means of circumventing the classification issue. Although the majority were clear that the payment was a tax,

• Board of County Comm’rs v Kobobel (2007) 176 3d 860 at 863.
• Helmv Childers (1938) 75 2d 398 at 399 (Oklahoma Supreme Court).
• Wayv Grand Lake Ass’n (1981) 635 2d 1010 at 1015 and 1016 (Oklahoma Supreme Court). See also NationalFederationof Independent Business v Sebelius, fn 19 above.
• Board of County Comm’rs v Kobobel (2007) 176 3d 860 at 863 (Colorado Court of Appeals); Silver Dollar Metropolitan District v Goltra (2002) 66 P.3d 170 at 174 (Colorado Court of Appeals); Denver West Metropolitan District v Geudner (1989) 786 P.2d 434 at 436 (Colorado

Court of Appeals).

• Wayv Grand Lake Ass’n (1981) 635 2d 1010 at 1015.
• Massey‑Ferguson Industries Ltd v Government of Saskatchewan (1981) 127 DLR (3d) 513 at 528

(Supreme Court of Canada).

• AustralianTape, fn 16 above, per Mason CJ, Brennan, Deane and Gaudron JJ at [20].

they arguably had trouble justifying such a classification on the basis of the criteria of public purpose.

The line between public and private seemingly grows less bright as the group in question either diminishes in size or becomes more specific. So, the question becomes, at what point is a group small enough or sufficiently particularised to be effectively indistinguishable from an individual? The significance of which being that the only way that a finding of a tax can be justified is in accordance with public interest rather than public purpose.

One idea — direct public benefit — that seeks to ameliorate the problem and has met with the approval of the Oklahoma Supreme Court is evidenced in the following passage:61

“This does not mean, however, that a tax is not for a public purpose unless the benefits from the funds to be raised are to be spread equally over the whole community or a large portion thereof. A use may be public although it is of benefit primarily to the inhabitants of a small and restricted locality. Moreover, it is said that any direct public benefit, no matter how slight, as distinguished from those public benefits or interests incidentally arising from private enterprise, will sustain a tax.”

The reliance on “any direct public benefit” is, however, potentially problematic given its reliance on “direct”. Once again, we are in the territory of having to draw a line, this time between a direct benefit and an indirect benefit. This, arguably, just puts the problem at one remove.

One potential solution would be simply to reject the idea of public purpose as a definitional criteria altogether and replace it with “redistributive purpose”.62 This seemingly helps us to square the circle. Redistribution is arguably the main function of a government. Therefore, if the state chooses to take money from one person and give it to another “in the public interest” (if so doing serves the wider interests of the community) then, despite the fact that this is not undertaken for a public purpose (as it is made in relation to a person), it is nonetheless a form of redistribution and a “governmental purpose”. Extending the analysis yet further, it has already been suggested that the idea of public benefit is shared by the public sector and the non-profit sector. In the same way, it is the main function of both of these sectors to redistribute wealth. On the other hand, the function of the private sector is not

• Wayv Grand Lake Ass’n (1981) 635 2d 1010 at 1015.
• References to redistribution are manifest throughout the economic and legal literature on taxation. See, for example, RM Bird and EM Zolt, “Redistribution via taxation: the limited

role of the personal income tax in developing countries” (2004–2005) 52 UCLA L. Rev. 1627 and HR Varian, “Redistributive taxation as social insurance”, (1980) 14(1) Journal of Public Economics 49.

to redistribute wealth, but to create it. To the extent that redistribution is necessary, as a result of the failure of competitive markets, it falls to governments and charities alike to address distortions to the egalitarian distributive norm that currently informs modern democratic states. As long as the act of redistribution does not unduly enrich the intermediary (beyond the need to pay wages and costs), we are not in the territory of private benefit.

While the concept of redistribution is not value free in terms of its normative content

— The Oxford English dictionary defines “redistribute” as to “distribute something again or differently, now freq. in order to achieve greater equality” — it is nonetheless easy to distinguish it as a purpose from that of other compulsorily imposed transfers

of value. For example, a penalty has punishment as its primary purpose,63 a fine has disincentivisation or behaviour modification as its primary purpose, a service charge or fee has a quid pro quo rationale in relation to the provision of a government good or service, and interest on a debt to government has, arguably, the time value of money as its primary purpose.

Although some cite redistribution as one of a number of goals or objectives of a tax, often the issue addressed in the literature centres around the extent to which redistribution is achievable via certain types of taxation.64 However, there is a strong argument that throughout the current common-law characterisation of a tax, redistribution is an implicit theme, albeit that it has not been explored expressly by any of the commentators or judges. It is submitted that the adoption of redistributive purpose as a definitional element of a tax means the adoption of a purposive definition, which lends itself nicely to the movement of tax law generally away from literalism.

In order to prove a redistributive purpose, one must first ascertain whether the imposition of a particular levy was driven, ex ante, by the need to make revenue available for general expenditure as part of the public finances. If such an investigation proves either inconclusive or contrary, one must then explore, ex post, whether the effect of the levy was, in fact, to make such revenue available.

• NationalFederationof Independent Business v Sebelius (2012) 132 Ct. 2566 at 2596–97 (“if the

concept of penalty means anything, it means punishment for an unlawful act or omission”).

• For the view that the tax system is typically more efficient at redistributing income than other legal frameworks, see L Kaplow and S Shavell, “Why the legal system is less efficient than the income tax in redistributing income”, (1994) 23(2) The Journal of Legal Studies 667–681. The issue of whether there exist superior redistribution schemes to income and commodity taxes is discussed by K Roberts, “The theoretical limits to redistribution”, (1984) 51(2) The Review of Economic Studies 177–195.

5. Conclusion

This article argues for an alternative definition of the word “tax”. It suggests that neither the (1) common-law definitions, as they are,65 nor (2) the approach of classifying payments according to certain positive and negative criteria are fit for purpose. It argues that a better definition is that a tax is a compulsory transfer of value imposed primarily for a redistributive purpose. This definition suggests, rather than makes explicit, the idea that only the dominion of the state over any given person will give rise to a compulsory transfer of value whose primary purpose is a redistributive one. The courts will not permit the private or the not-for-profit sector to require or exact such a payment or transfer of value. Neither will they permit another organ of the state impose a tax where the constitution does not permit it.66

This article also holds that a redistributive purpose can be established ex ante or ex post and that, if a payment or transfer of value has no clear purpose, it is nonetheless a tax if there is revenue available for redistribution. Despite not being “value-free”, a redistributive purpose does the job of distinguishing payments of tax from other compulsory transfers of value. Employing redistribution — rather than, say, revenue raising — as the primary purpose of a tax also lends a higher degree of much-needed granularity to the definition. This will ultimately help the courts and, given that public perception of taxes is increasingly important, help the general public understand what taxation actually is.

Given that taxes and taxation are increasingly being thought about in a human rights and cross-border context, the explicit statement that the primary purpose of tax is redistribution may also help commentators navigate the treacherous seas of tax law jurisprudence.

• See Latham J’s seminal definition in Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR

263 at 276 (“The levy is, in my opinion, plainly a tax. It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered”).

• Low v Austin (1871) 80 S. 29 at 35 per Mr. Justice Field (“The rule is general that whenever

taxation by a state is forbidden or would interfere with the full exercise of a power vested in the government of the United States over the same subject, it cannot be imposed”).