Comparing Construction

"The hardest thing in the world to understand is income tax"
-- Albert Einstein

Florida state doesn't have an income tax, but you might not know it by reading their law. This is a side-by-side comparison of the laws & regulations for US Federal income tax with Florida state income tax law.

1.

The Federal government and Florida both have power or authority to collect taxes.

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived"

220.701 "Collection authority.--The department shall collect the taxes imposed by this chapter"

2.

Federal law imposes a tax upon taxable income, in Florida it's net income [Federal law also used to refer to it as net income]. If you wish, you can use these image links to follow along (open each in a new window or tab by right-clicking).

Tax imposed

26 USC Sec. 1
"There is hereby imposed on the taxable income of - [(a) every married individual, (b) every head of household, (c) every... unmarried individual, (d)... (i.e. citizen)] a tax"

Tax imposed

220.11 (1)
"A tax measured by net income is hereby imposed on every taxpayer ... for the privilege of conducting business, earning or receiving income in this state, or being a resident or citizen of this state."

[How can it be "on every taxpayer... for... being a citizen"? Florida has no State income tax. Yet, a tax on every citizen is actually written into Florida law, like the imposing Federal law, opposite.]

3.

1. Taxable income means gross income minus deductions.
2. Gross income means all income.

26 USC Sec. 63
(a) "the term 'taxable income' means gross income minus the deductions allowed"

26 USC Sec. 61
(a) "General definition ... Except as otherwise provided ... gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;... "

[ 220.12 Net income is "taxable income" (220.13(2)) as defined in Federal law - USC Sec. 63, then becoming gross income minus the deductions allowed.]

196.012 Definitions.
(10) "Gross income means all income from whatever source derived, including, but not limited to, the following items... : earned income, income from investments, gains derived from dealings in property, interest, rents, royalties, dividends, annuities, income from retirement plans, pensions, trusts, estates and inheritances, and direct and indirect gifts."

[So, it's "all income" in both cases, but "minus the deductions allowed"]

 4.

There are many "deductions" to examine (916 files in 2004). Federal law says "Except as otherwise provided", so we continue searching for 1) deductions, and 2) the list of taxable income.

['...as otherwise provided'? ]

26 USC Sec. 863.
"Special rules for determining source

(a) Allocation under regulations
Items of gross income... and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary."

[But, USC 861 and 862 only have one deduction. So where are the plural - 'deductions'?]

[Net income is "adjusted federal income", 220.12]

<---- moving to federal side, focusing on deductions

5.

USC 863 tells us that more "deductions" exist, and "shall be allocated... under regulations prescribed by the Secretary". USC 863's corresponding regulation is CFR 863.

26 CFR Sec. 863-1
"Allocation of gross income ...
(c) Determination of taxable income. The taxpayer's taxable income from sources within or without the United States will be determined under the rules of Sec. 1.861-8 through 1.861-14T for determining taxable income from sources within the United States."

["the rules... for determining taxable income" (1 file found). Only one regulation in the CFR contains this term - among millions of words. It clearly commands "taxable income... will be determined under the rules of Sec. 1.861-8"]

[Net income is "adjusted federal income", 220.12]

<---- continuing with federal side,
how to determine taxable income

6.

Next, examining 861-8, we see the "specific guidance" (1 file) for the rules for deductions. The term, specific guidance, is written only once in the entire Income Tax, in sec. 861.

26 CFR 861-8
"Computation of taxable income..."

(a)(1) "Scope. This section provides specific guidance ... prescribing rules for the allocation... of... deductions of the taxpayer. The rules contained in this section apply in determining taxable income of the taxpayer... See... (f)(1) of this section for a list..."

(2) "A taxpayer... is required to allocate deductions to a class of gross income"

(3) "a 'class of gross income' ...may consist of one or more items... of gross income enumerated in section 61, namely:
 (i) Compensation for services, including fees, commissions, and similar items;
 (ii) Gross income derived from business;
 (iii) Gains derived from dealings in property;
 (iv) Interest;..."

(4) "... Gross income ... may include, or consist entirely of, excluded income. See paragraph (d)(2) of this section"

(b) "Allocation--(1) ...gross income to which a specific deduction is definitely related is referred to as a "class of gross income'' and may consist of one or more items of gross income. See... paragraph (d)(2) of this section which provides that a class of gross income may include excluded income."

(d)(2) "For guidance, see Sec. 1.861-8T(d)(2)".

Florida State Income Tax

[Net income is "adjusted federal income", 220.12]

<---- continued with federal,
how to determine taxable income

7.

Saying the above once again - "This section provides specific guidance... [and ] Gross income [including income enumerated in the given list] ... may include, or consist entirely of, excluded income... For guidance, see Sec. 1.861-8T(d)(2)"

And finally, Federal law compared to its Florida equivalent.

[What is taxed: Federal - the exact list, determined by measurable and repeatable results, see How to Search]

26 CFR Sec. 861-8T(d)(2)
(i) the following rules shall apply to take account of income that is exempt or excluded...with respect to allocation and apportionment of deductions.

(ii) ...the term exempt income means any income that is, in whole or in part, exempt, excluded, or eliminated for federal income tax purposes.

(iii) Income that is not considered tax exempt. The following items are not ... exempt, eliminated, or excluded...and, thus [...thus are taxable]:
(A) foreign taxpayer
(B) DISC or a FSC
(C) possessions corporation...
(D) Foreign earned income as defined in section 911 and the regulations thereunder

[What is taxed: in Florida - the exact list, also determined by measurable and repeatable results, see How to Search]

[Federal regulations use many pages to show what Florida law can show in a fraction of pages.]

220.02 Legislative intent.-- (1) It is the intent of the Legislature in enacting this code to impose a tax upon all
corporations,
organizations,
associations, and other
artificial entities... Subject ... for the privilege of conducting business, deriving income, or existing

Result: An individual citizen is not taxed on domestic income.

Result: An individual citizen is not taxed on domestic income.

According to the Principles of Statutory Construction, if a list in a statute does not include a particular item, it has been excluded from the list, and is "excluded from the statute's coverage or application."

The courts, the laws, and regs, tell us that we are "subject to" and "liable to" the income tax, and accurately so, but if we see what we are subject for, and liable for, we see what is really taxed. It may apply to you, or it may not. Only by finding who, what, when, where, and how can we accurately determine any tax. Such instructions and information are required, and thus, are provide in the regulations.