There shall be assessed, levied, collected, and paid a tax of six percent upon the first $11,000 and ten percent upon the amount over the first $11,000 of all wages and salaries received by every employee, as defined, except as provided in section 122 of this chapter.
Source: COM PL 4C-2 § 2; COM PL 4C-14 § 6 (part); COM PL 6-52 § 3; COM PL 7-67 § 1(1); PL IC-26 § 4; TT Code 1980, 77 TTC 252(1).
Case annotations: In the FSM Income Tax Law, 54 F.S.M.C. 111 et seq., cooperatives are not singled out in any way within the definition of business and there is no indication in the tax law that cooperatives are to be treated differently than corporations or any other forms of businesses. Kolonia Consumers Coop. Ass’n v. Tuuth, 5 FSM R. 68, 70 (Pon. 1991).
An income tax typically applies to practically all income, with rates payable based on the total income of the taxpayer, after giving allowance to certain exemptions, and normally extends to all forms of income, including wages and salaries, interest, royalties, fees and returns on capital, as well as income realized through the sale of goods. Youngstrom v. Kosrae, 5 FSM R. 73, 76 (Kos. 1991).
The FSM Income Tax Law confirms that it is the nature of the services performed and the person performing the services, rather than the stated identity of the contracting party, which determines the tax treatment for the compensation under the contract. It is of no import that the “contractor” was identified as a corporation rather than as an individual when the contract makes clear that the primary services to be rendered were those of an individual and the corporation was merely a name under which the individual conducted business. Heston v. FSM, 2 FSM R. 61, 64 (Pon, 1985).
All Government officials are employees of the Government within the meaning of the FSM Income Tax Law. Heston v. FSM, 2 FSM R. 61, 65 (Pon. 1985).
Although plaintiff incurred expense in carrying out his obligations under contract, they were well below ten percent of the amount he received under the contract. Such expenditures are insufficient to alter plaintiff’s status from an “employee” to a “business” under the FSM Income Tax Law. Heston v. FSM, 2 FSM R. 61, 66 (Pon. 1985).
A taxpayer who held the high public office of Chief of Finance, whose contract gave him a wide degree of discretion in carrying out governmental powers, and who was not an outside consultant who could merely suggest or advise but was an integral part of the governmental operation is a governmental official, therefore an employee for purposes of the FSM Income Tax Law. Heston v. FSM, 2 FSM R. 61, 65 (Pon. 1985).
The FSM Income Tax Law’s distinction between employees and businesses obviously reflects congressional expectation that businesses and employees are generally distinguishable on the basis of whether generation of their income would require substantial expenditures by them. Rauzi v. FSM, 2 FSM R. 8, 19 (Pon. 1985).
There is a common law of taxation which addresses the status of public officials as employees. Rauzi v. FSM, 2 FSM R. 8, 17 (Pon. 1985).
A Pohnpei State Government official is an employee for purposes of the FSM Income Tax Law. Rauzi v. FSM, 2 FSM R. 8, 12 (Pon. 1985).
There appears to be uniform acceptance by common law jurisdictions of the principle that government officials are considered employees for income tax purposes. This amounts to common law rule of taxation and yields a result in harmony with the underlying principles of the taxation system established by the FSM Income Tax Law. Rauzi v. FSM, 2 FSM R. 8, 12 (Pon. 1985).
(1) Every employee, as defined, except those whose gross annual wages and salaries are $5,000 or more, shall be allowed a deduction of $1,000 per year from all wages and salaries subject to tax levied by section 121 of this chapter and received by the employee in the year in which the deduction is claimed.
(2) The deduction shall be claimed by the employee filing for a refund under the provisions of section 123 of this chapter.
Source: COM PL 4C-2 § 2; COM PL 4C-14 § 6 (part); COM PL 5-79 § 1; COM PL 7-67 § 1(2); TT Code 1980, 77 TTC 252(2).
(1) If it shall be shown, upon application of an employee, that there has been withheld from his wages or salaries any tax not due thereon, or more than the amount of tax due thereon, or that he has paid from his wages and salaries any tax not due thereon or more than the amount of tax thereon, or if it is shown upon application of the business that it has paid an amount not due as tax under this chapter or greater than the tax levied under this chapter, then the Secretary shall refund the amount found to have been overpaid or otherwise not due and shall pay such refund out of current collections of the tax; provided, the Secretary shall be satisfied that:
(a) the amount so overpaid or otherwise not due has been paid to the Government;
(b) the amount of refund claimed has not been used as a credit against any tax or taxes due and payable to the Government from such employee; and
(c) application for such refund was filed within one year after the end of the calendar year in which the amount to be refunded was withheld or paid.
(2) The Secretary shall make a decision on the application for refund within 90 days after it is submitted.
If an employee is credited or paid salaries or wages derived from, or attributable to, personal services performed or rendered both within and without the Federated States of Micronesia, then the whole of the salaries or wages shall be presumed to have been earned within the Federated States of Micronesia.
Editor’s note: The 1980 edition of the Trust Territory Code erroneously substituted COM PL 7-32 § 6(1) for this provision. COM PL 4C-2 § 10(a) was the law prior to its amendment by PL 7-41 § 3.
Case annotations: The gross revenue tax levied by the National Government under 54 F.S.M.C. §§ 141-144 is distinguishable from a sales tax in several ways. Ponape Fed’n of Coop. Ass’ns v. FSM, 2 FSM R. 124, 127 (Pon. 1985).