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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, May 22, 2019

Tax Papers At Today's Junior Faculty Forum At Richmond

Richmond (2018)Tax presentations at today's Junior Faculty Forum at Richmond:

Hayes Holderness (Richmond), Legislative Evasion through Tax:

Approximately 20 states impose specific excise taxes on the possession or sale of controlled substances (i.e., illegal drugs). Often these taxes take the form of stamp taxes, requiring the taxpayer to purchase and affix stamps to the controlled substances in his or her possession. These taxes are rarely, if ever, enforced or complied with before the taxpayer is charged in the criminal justice system for the possession of the controlled substance. Once a taxpayer is brought into the criminal justice system, the state taxing authority is alerted and an assessment for the controlled substance tax is issued.

Courts and commentators have addressed the major criminal law issues associated with the taxes—namely concerns about double jeopardy and self-incrimination. From a tax perspective, the taxes might not appear particularly problematic; they merely function as Pigouvian taxes on the possession or sale of controlled substances. However, because these taxes are imposed on activities already sanctioned through another area of law and because enforcement of the taxes relies on non-tax actors, concerns arise about the incidence and administration of the taxes. These concerns call in to question the effectiveness of controlled substances taxes and suggest that the taxes serve as low-salience vehicles for legislators to achieve non-tax policy results.

Daniel Schaffa (Richmond), Valuable Realizations (with James R. Hines Jr. (Michigan)):

Capital gain taxes are triggered by realizations rather than accruals, as a result of which investors have incentives to avoid selling appreciated assets. This is commonly interpreted as an incentive to defer realizations, which is incorrect. This paper notes that in important cases investors are indifferent between earlier and later gain realizations, or even prefer earlier realizations, because what matters most from a tax standpoint is the ability to accrue unrealized gains over long periods. The analysis considers the effects of capital gain taxation on valuations of alternative investment strategies, identifying circumstances in which higher tax rates encourage earlier realizations.

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