Could a New Mexico resident avoid personal income tax on wages by arguing that federal income tax is invalid or voluntary?

Plain-English summary

James Avant owed $2,230 of New Mexico personal income tax on compensation for services performed in the state, plus penalty and interest. Standard tax-protester arguments attacking the validity of federal and state income tax did not overcome the assessment.

Avant did not deny earning the income or challenge how the Department calculated his 1999 liability. Instead, his written protest argued that federal income tax was invalid and, by extension, New Mexico's tax was invalid.

Courts had already rejected the arguments

The decision described Avant's claims as canned tax-protester positions based largely on quotations taken out of context. The cited federal cases had rejected arguments that:

• Individuals are not persons subject to income tax.
• Federal taxing authority is limited to the District of Columbia.
• The Sixteenth Amendment is invalid or applies only to corporations.
• Wages are not income.
• Income tax is voluntary or contractual.
• Individuals need not file returns reporting income.

The New Mexico Supreme Court had likewise held that challenges to New Mexico's authority to tax residents' wages were “manifestly without merit.” Federal gross income included compensation for services, and state law expressly defined compensation to include wages, salaries, commissions, and other employee remuneration.

Repeal of federal collection provisions changed nothing

Avant separately argued that Congress's 1990 repeal of former 26 U.S.C. §§ 6361-6365 limited states' ability to collect income tax.

Those provisions had offered states an unused option to have qualifying state income taxes administered through federal procedures. Their enactment did not displace other state collection methods, and their repeal did not remove New Mexico's independent authority to tax residents.

Because Avant offered no factual or legally valid basis for abatement, he did not overcome the statutory presumption that the assessment was correct.

Result: protest DENIED. The $2,230 tax assessment, penalty, and interest stood.

What this means for you

Wage earners

Compensation for services is taxable income under the federal and New Mexico provisions applied in this decision. Labeling income tax voluntary does not create a defense.

Taxpayers disputing an assessment

Challenge the actual facts, computation, or governing law with relevant authority and evidence. Recycled constitutional slogans did not shift the burden here.

Tax professionals handling protester arguments

The decision collects federal and New Mexico precedent rejecting many recurring claims and confirms that repealed federal collection procedures did not limit state taxing sovereignty.

Common questions

Q: Did Avant deny receiving the income?
A: No.

Q: Did he challenge the Department's calculation?
A: No.

Q: Are wages taxable income?
A: Yes. The decision cites both federal and New Mexico law expressly including compensation for services.

Q: Is income tax voluntary?
A: No. The cited courts repeatedly rejected that argument.

Q: Did repeal of the Federal-State Tax Collection Act provisions end state income taxes?
A: No. Those provisions concerned an optional federal administration method and did not limit states' other collection authority.

Citations and references

Federal and state authorities:

• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, §§ 7-2-2(C) and 7-2-3 — compensation and taxable income
• 26 U.S.C. § 61(a) — federal gross income includes compensation for services
• Former 26 U.S.C. §§ 6361-6365 — optional federal-state tax collection provisions repealed in 1990

Cases cited:

• Holt v. New Mexico Department of Taxation & Revenue, 2002-NMSC-034, 133 N.M. 11, 59 P.3d 491
• Lonsdale v. United States, 919 F.2d 1440 (10th Cir. 1990)
• Franchise Tax Board v. United States Postal Service, 467 U.S. 512 (1984)
• Michigan Central Railroad Co. v. Powers, 201 U.S. 245 (1906)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: James H. Avant
• Decision PDF: D&O 07-10

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
JAMES H. AVANT TO ASSESSMENT OF No. 07-10
PERSONAL I NCOME TAX ISSUED
UNDER LETTER ID L1105433856

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on June 5, 2007, before Margaret

B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”) was represented

by Elizabeth K. Korsmo, Special Assistant Attorney General. James H. Avant (“Taxpayer”)

represented himself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 7, 2006, the Department assessed the Taxpayer for 1999 New Mexico

personal income taxes in the amount of $2,230, plus penalty and interest.

2. On September 27, 2006, the Department received the Taxpayer’s written protest in

the form of a brief that set out various legal arguments concerning the validity of the federal income

tax which, by extension, would affect the validity of New Mexico’s income tax.

3. The Taxpayer has not denied that he earned the income on which the Department’s

assessment was based, nor has he challenged the method by which the Department calculated his

personal income tax liability on that income.

DISCUSSION

The issue to be decided is whether James Avant is liable for New Mexico personal income

tax on his 1999 income. Mr. Avant’s protest raises a number of arguments challenging the validity
of the federal income tax, which is the starting point for determining his liability for New Mexico

personal income tax. Mr. Avant does not challenge the factual basis for the Department’s

assessment, i.e., that he received compensation for services performed in New Mexico during the

1999 tax year.

The arguments raised in Mr. Avant’s protest are not new, but are canned recitations of

various arguments from the tax protester movement, all of which have been universally rejected by

both state and federal courts. At the administrative hearing, the Department’s attorney presented a

thorough analysis of the legal authority Mr. Avant cites in his brief. Her review establishes that most

of his arguments are based on fragmentary quotes taken out of context from court decisions

completely unrelated to personal income tax. The Department also noted the voluminous body of

case law on the issues raised by Mr. Avant, including Lonsdale v. United States, 919 F.2d 1440, 1448

(10th Cir. 1990) a decision from the Tenth Circuit Court of Appeals that summarily disposed of many of

the same legal arguments presented here:

[T]he following arguments alluded to by the Lonsdales are completely lacking in
legal merit and patently frivolous: (1) individuals ("free born, white, preamble,
sovereign, natural, individual common law 'de jure' citizens of a state, etc.") are not
"persons" subject to taxation under the Internal Revenue code; (2) the authority of the
United States is confined to the District of Columbia; (3) the income tax is a direct
tax which is invalid absent apportionment…; (4) the Sixteenth Amendment to the
Constitution is either invalid or applies only to corporations; (5) wages are not
income; (6) the income tax is voluntary; (7) no statutory authority exists for imposing
an income tax on individuals; (8) the term "income" as used in the tax statutes is
unconstitutionally vague and indefinite; (9) individuals are not required to file tax
returns fully reporting their income; and (10) the Anti-Injunction Act is invalid.

See also, In re Becraft, 885 F.2d 547, 548 (9th Cir. 1989) (the Sixteenth Amendment authorized a non-

apportioned direct income tax on United States citizens); Coleman v. Commissioner, 791 F.2d 68, 70

(7th Cir. 1986) (wages are income, and the tax on wages is constitutional); United States v. Schiff, 876

F.2d 272, 275 (2d Cir. 1989) (payment of income taxes is not optional; the average citizen knows that

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payment of income taxes is legally required); McLaughlin v. United States, 832 F.2d 986, 987 (7th Cir.

1987) (the notion that the federal income tax is contractual or otherwise consensual in nature has been

repeatedly rejected by the courts).

More recently, the New Mexico Supreme Court characterized arguments questioning New

Mexico’s authority to tax the wages earned by its residents as “manifestly without merit.” Holt v.

New Mexico Department of Taxation & Revenue, 2002 NMSC 34 ¶ 3, 133 N.M. 11, 59 P.3d 491.

The court noted that the United States Supreme Court, “as well as every circuit of the United States

Court of Appeals, has recognized that employment wages are taxable income.” Id. at ¶ 14. The Holt

decision definitively held that compensation earned by New Mexico residents is subject to New

Mexico’s personal income tax:

Through its plain language, Section 61(a) includes "compensation for services" in
its definition of gross income. Our conclusion that compensation for services
equals wages earned from employment is confirmed by state statute. Section 7-2-
2(C) states that "'compensation' means wages, salaries, commissions and any other
form of remuneration paid to employees for personal services." The plain language
of Section 7-2-2(C) and Section 7-2-3 specifically indicates that employment
wages and salaries are taxable income….

2002 NMSC 34, ¶ 12. Based on the court’s decision in Holt, which is binding law in New Mexico,

there is no need for further analysis of Mr. Avant’s arguments concerning New Mexico’s right to tax

his 1999 income, with one exception.

The only issue not addressed in Holt is Mr. Avant’s contention that Congress’s 1990 repeal

of 26 U.S.C. §§ 6361-6365 curtailed the states’ ability to collect individual income taxes from their

residents. This contention is based on a misunderstanding of the referenced statutes, which were

designed to encourage states to conform their personal income tax structure to that of the federal

government. In furtherance of this goal, Congress passed the Federal-State Tax Collection Act of

1972, codified at 26 U.S.C. §§ 6361-6365. The Act provided that a state with a "qualified state

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individual income tax," i.e., a tax closely conforming to the model of the federal income tax, could

enter into an agreement to have those taxes collected and administered by the federal government.

As noted in W. Hellerstein, Symposium on State and Local Taxation, 39 Vand. L. Rev. 1033, 1055 n.

31 (May 1986), none of the states chose to enter into such an agreement, and the Act was repealed in

November 1990. See, Public Law 101-508, Title XI, § 11801(a)(45), 104 Stat. 1388-522.

In Franchise Tax Board v. United States Postal Service, 467 U.S. 512 (1984), the Postal

Service challenged California’s enforcement of state withholding tax laws by arguing that Congress

intended states to use the provisions for collecting state tax liabilities found in 26 U.S.C. §§ 6361-

6365 and that California could not take direct collection action against the Postal Service. The

United States Supreme Court rejected this argument, finding that “nothing in that statute, which

permits States to use the summary collection procedures of the Internal Revenue Service, limits the

power of States to use any other available procedure.” 467 U.S. 512, 525 n.22. See also, Michigan

Central Railroad Co. v. Powers, 201 U.S. 245, 292-293 (1906) (with respect to state taxation, the

state has the freedom of a sovereign, both as to objects and methods). These decisions confirm that

neither the 1972 enactment nor the 1990 repeal of §§ 6361-6365 had any effect on New Mexico’s

authority to collect personal income tax from its residents.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the assessment of 1999 personal income

taxes issued under Letter ID No. L1105433856, and jurisdiction lies over the parties and the subject

matter of this protest.

B. Pursuant to NMSA 1978, § 7-1-17(C), the Department’s assessment is presumed to

be correct, and it is Mr. Avant’s burden to come forward with evidence and legal argument to

establish that he is entitled to an abatement.

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C. Mr. Avant failed to meet his burden of proving that the Department’s assessment of

personal income tax for the 1999 tax year was incorrect or that it violated the United States

Constitution or any federal or state statute.

For the foregoing reasons, the Taxpayer’s protest IS DENIED.

DATED June 11, 2007.

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