Tax vs. penalty battle also underway at lower governmental levels

July 3, 2012

As soon as the Supreme Court's health care ruling, and by Supreme Court I mean Chief Justice John Roberts' swing vote and majority opinion, was issued, thousands of us started scouring not only legal documents, but also dictionaries.

Dictionary thesaurusWe're all looking for some clarity on taxes vs. penalty charges.

A tax generally is defined as a government levy to raise money to run said government and the public goods and services it provides.

A penalty typically is a punishment imposed for violating a law.

Then we have penalty tax, which InvestorWords.com says is a local or federal punitive tax applied to deter non-compliance, such as underpayment of income tax or disregard of the rules governing a business activity.

Quick, someone check Roberts' browser history to see if he's been on that website.

Still avoiding the tax word: The term tax is now more pejorative than usual, so it was specifically avoided during the health care act debate.

President Obama and his staff continue to eschew the T-word.

And while the prez's November opponent has different reasons for his definitional parsing, even Mitt Romney believes that we shouldn't call the health care tax penalty a tax, but rather a flat-out penalty or fee or fine.

Now the penalty vs. tax distinction and debate has popped up at the state level in connection with more local, misdemeanor-level laws.

Fines and fees are increasing as money-starved towns across the country turn to for-profit businesses to administer the collections, according to a story in today's New York Times.

The companies essentially are bill collectors who have the authority to put people who don't pay fines, mostly related to traffic violations, in jail.

They also have the authority to tack on a lot of additional charges. In one Pennsylvania county, reports the Times, 26 different fees totaling $2,500 are assessed in addition to the fine.

Fees replacing taxes: The inherent challenge in such a public-private arrangement, says a recent study by the nonpartisan Conference of State Court Administrators, is ensuring that fines, fees and surcharges are not simply an alternate form of taxation.

To that end, says the Courts Are Not Revenue Centers report, courts should be substantially funded from general governmental revenue sources, that is, by taxes, that allow them to fulfill their constitutional mandates:

"It is axiomatic that the core functions of our government are supported from basic and general tax revenues. Government exists and operates for the common good based upon a common will to be governed, and the expense thereof is borne by general taxation of the governed. Courts, as a core function of government, should be substantially funded by general government revenues. It is as illogical to expect the judiciary to be self-supporting through user fees as it would be to expect the executive or legislative branches of government to be funded through user fees."

Or as the Louisiana Supreme Court put it, "[C]lerks of court should not be made tax collectors for our state, nor should the threshold to our justice system be used as a toll booth to collect money for random programs created by the legislature."

Look for this court system tax vs. penalty funding issue to come up again as lawsuits in these private enforcement company cases wind through the judicial system.

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