THE SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
Cite as Afituk v. FSM,
2 FSM Intrm. 260 (Truk 1986)
FEDERATED STATES OF MICRONESIA &
ALOYSIUS J. TUUTH, SECRETARY OF FINANCE, FSM,
CIVIL NO. 85-1010
ORDER DENYING MOTIONS
Before Richard H. Benson
October 22, 1986
For the Plaintiff: Jeanne Rayphand
P.O. Box D
Moen, Truk 96942
For the Defendants: Randall E. Ferguson
Asst. Attorney General
P.O. Box 490
Kolonia, Pohnpei 96941
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Constitutional law-due process;
Constitutional law-equal protection
Because the Declaration of Rights is patterned after provisions of the United States Constitution, and United States cases were relied on to guide the constitutional convention, United States authority may be consulted to understand the meaning. Afituk v. FSM, 2 FSM Intrm. 260, 263 (Truk 1986).
Taxation of gross revenue of business at different amounts and rates depending upon the amount of each business's annual gross revenue is rationally related to the legitimate legislative purposes of requiring businesses who receive less to pay lower tax and of administrative simplicity, and therefore does not violate the due process or equal protection provisions of the FSM Constitution. Afituk v. FSM, 2 FSM Intrm. 260, 263 (Truk 1986).
The power granted to Congress by FSM Const. art. IX, § 2(e) "to impose taxes on income" includes the power to tax gross revenue. Afituk v. FSM, 2 FSM Intrm. 260, 264 (Truk 1986).
Transition of authority
The gross revenue tax as enacted by the Congress of Micronesia continued in effect in the Federated States of Micronesia by virtue of the transition article of the FSM Constitution but, because it was subsequently amended by the FSM Congress and was included in the codification of FSM statutes, may now be considered a law enacted by Congress. Afituk v. FSM, 2 FSM Intrm. 260, 264 (Truk 1986).
There is no evidence in the journal of the Constitutional Convention that the phrase "to impose taxes on income" in FSM Constitution, Article IX, Section 2(e) was derived from the Sixteenth Amendment of the United States Constitution which permits the United States Congress to "lay and collect taxes on income" so in determining the meaning of the Federated States of Micronesia constitutional provision, no particular weight should be given to the United States cases. Afituk v. FSM, 2 FSM Intrm. 260, 264 (Truk 1986).
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RICHARD H. BENSON, Associate Justice:
This matter came before the court on the motion of the plaintiff for an order granting summary judgment. After oral argument on October 22, 1985, the matter was submitted to the court for decision.
I find that there is no genuine issue as to any material fact, but I do not conclude that the plaintiff is entitled to judgment as a matter of law.
The issues presented are whether the gross revenue tax of the Federated States of Micronesia violates the due process or equal protection clause of the Constitution and whether the gross revenue tax is within Congress's power to impose taxes on income.
Under the facts of this case I conclude that the tax is constitutional.
In an earlier case the Trial Division in Pohnpei upheld the gross revenue tax against an assertion that it was not a tax on income. Ponape Federation of Coop. Ass'ns v. FSM, 2 FSM Intrm. 124 (Pon. 1985).
The plaintiff does business in Truk State. For the period of January 1, 1985 to March 31, 1985 the government assessed a tax of $80.00 against the plaintiff based on the gross revenue of his business. The plaintiff has a retail store at which canned sardines, canned mackerel, soap, cigarettes, biscuits, cookies, candy and similar items are sold. The plaintiff seeks a declaratory judgment and certain injunctive relief.
Subchapter IV of Chapter I of Title 54 of the Code of Federated States of Micronesia imposes a tax on gross revenue. There are three categories: $80 per year for businesses earning not more than $10,000 annually; 3% per year upon the portion of a business's gross revenue which exceeds $10,000; and an exemption for those businesses earning not more than $2,000.00. 54 F.S.M.C. 141.
The definition of gross revenue appears in 54 F.S.M.C. 112(5):
"Gross revenue" means the gross receipts, cash or accrued, of the taxpayer received as compensation for personal services not in the form of salaries or wages as defined in subsection (11) of this section,
the gross receipts of the taxpayer derived from trade, business, commerce, or sales
the value proceeding or accruing from the sale of tangible personal property, or service, or both,
all receipts, actual or accrued by reason of the capital of the business engaged in, including interest, rentals, royalties, fees, or other emoluments however designated and without any deductions on account of the cost of property sold, the cost of materials used, labor cost, taxes, royalties, or interest paid or any other expenses whatsoever.
The definition continues with a list of several items not included
within the meaning of gross revenue. Those items are not applicable in this case, nor helpful in analyzing the questions posed by the plaintiff's motion.
For clarity the court has written the definition in the form appearing without altering the text.
DUE PROCESS AND EQUAL PROTECTION
The plaintiff contends that the tax deprives him of his property without due process of law and denies him equal protection of the law, in that the three classifications for tax liability are unreasonable and arbitrary.
Article IV, Section 3 of the FSM Constitution states, "A person may not be deprived of life, liberty, or property without due process of law, or be denied the equal protection of the laws." The due process clause is drawn from Fifth Amendment of the Constitution of the United States which provides, "No person shall ... be deprived of life, liberty, or property, without due process of law." The equal protection clause appears in the Constitution of the United States only in regard to state action. The Fourteenth Amendment provides, "No State shall ... deny to any person within its jurisdiction the equal protection of the laws."
Because the Declaration of Rights is patterned after provisions of the U.S. Constitution, and United States cases were relied on to guide the Constitutional Convention, U.S. authority may be consulted to understand the meaning of these rights. Alaphonso v. FSM, 1 FSM Intrm. 209, 214, 215 (App. 1982), SCREP No. 14, II J. of Micro. Con. Con. 795-797.
In the United States, the federal government's violation of equal protection to any of its citizens is deemed a deprivation of due process of law. J. Novak, R. Rotunda & J. Young, Constitutional Law 585 (2d ed. 1983).
The classification of those who receive differing gross revenue is permissible if the classifications are rationally related to a legitimate legislative purpose. Allied Stores of Ohio v. Bowers, 358 U.S. 522, 527-28, 79 S. Ct. 437, 441, 3 L. Ed. 2d 480, 485 (1959). Here the government suggests the purpose is so that those receiving less revenue pay less tax. The payment of one tax ($80.00) for a range of revenue under $10,000 might also suggest a legislative purpose of administrative simplicity.
I conclude the tax does not violate the due process or equal protection provisions of the Constitution of the Federated States of Micronesia. This conclusion is in harmony with the constitutional history of these rights. SCREP No. 14, II J. of Micro. Con. Con. 793, 795-797.
IS GROSS REVENUE INCOME?
The plaintiff next contends that the gross revenue tax Is not "income" that can be taxed by Congress, and marshalls abundant United States authority that "income" means gain or profit.
The gross revenue tax first became effective in the Trust Territory in 1971. Pub. L. No. 4C-2, § 8.
The rate of the tax and the imposition thereof was amended by the Interim Congress of Micronesia, Pub. L. No. IC-26, § 5. This Act is entitled "An Act Amending Title 77 of the Trust Territory Code to conform the tax laws of the Federated States of Micronesia to the Constitution thereof, and for other purposes."
The definition of gross revenue has been twice amended by the Congress of the Federated States of Micronesia. Pub. L. No. 1-83; Pub. L. No. 2-23. Pub. L. No. 1-83 also provided that the Lax on gross revenue be paid to the National Revenue Officer of the Federated States of Micronesia.
Pub. L. No. 2-48 of the Federated States of Micronesia was enacted to codify the laws of the Federated States of Micronesia. Section 3(1) of thatlaw states, "All enacted law of the Interim Congress of the Federated States ofMicronesia ... and all enacted law of the Congress of the Federated States of Micronesia which are incorporated in Part II of the attached manuscript are hereby readopted and reenacted as positive law of the Federated States of Micronesia in the form appearing in the manuscript."
Based on this history I conclude that the gross revenue tax as it now appears is a law enacted by Congress. The interpretation of the law will therefore, if possible, avoid a finding of unconstitutionality. In re Otokichy, 1 FSM Intrm. 183, 190 (App. 1982).
The court agrees with the plaintiff that the gross revenue tax as enacted by the Congress of Micronesia continued in effect in the Federated States of Micronesia by virtue of the transition article of the FSM Constitution. FSM Const. art. XV, § 1. Subsequent enactments by theInterim Congress of the FSM and by the Congress of the FSM determine its nature as a national law and fix a presumption of constitutionality.
Article IX, Section 2(e) of the FSM Constitution empowers Congress "to impose taxes on income." In the examination of the issue presented, no particular weight is given to the cases of the United States because there is no evidence in the Journal of the Constitutional Convention that the phrase "to impose taxes on income" was derived from the Sixteenth Amendment of the United States Constitution which permits Congress to "lay and collect taxes on income," and because the word "income" is not a term of art which derives its meaning only from judicial decision.
The nature of the plaintiff's business causes its gross revenues to come within the second clause of the definition of gross revenue, ". . . the gross receipts of the taxpayer derived from trade, business, commerce, or sales."
Does gross revenue, so defined, come within the meaning of "income"? The court finds that it does.
Definitions of "income" in Webster's Third New International Dictionary (1971) include:
4a: a gain or recurrent benefit that is usually measured in money and for a given period of time, derives from capital, labor, or a combination of both, includes gains from transactions in capital assets, but excludes unrealized advances in value: commercial revenue or receipts of any kind except receipt or returns of capital - see earned income, gross income, net income, unearned income, compare profit, wage (emphasis added).
For the reasons stated, the plaintiff's motion for summary judgment is denied.