Direct Taxes

Direct Taxes

April 01, 2004

Direct taxes face a constitutional barrier.

Union Electric Company, a Missouri utility, tried to have a “special assessment” on uranium enrichment struck down on grounds that it was a “direct” tax.  A US appeals court refused in early April.

The US constitution bars the federal government from collecting any “direct” taxes unless the tax falls on each state in proportion to its population.

In 1992, Congress imposed a “special assessment” on domestic power companies that “purchased [enriched uranium] from the Department of Energy for the purpose of commercial electricity generation, before October 24, 1992.” The purpose was to raise money for shutting down and decontaminating the government’s uranium enrichment facilities.  The government estimated the shutdown would cost $2.25 billion.  The tax on each utility was tied to the amount of energy required for processing the utility’s uranium.  The tax was to remain in effect for 15 years or, if earlier, when the government collected $2.25 billion.  Union Electric paid $14.4 million in taxes, and then sued for a refund, charging that the tax was an unconstitutional direct tax.

A US appeals court disagreed.  It called the levy an “excise” tax rather than a direct tax.  Examples of direct taxes that the constitution requires fall on the states in proportion to their populations are a capitation tax — literally a tax on each head — poll tax, or tax on land.  The case is Union Electric Co. v. United States.

Keith Martin