Vetoed Government Corporation Exemption Act

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CONGRESS OF THE
COMMONWEALTH OF REDMONT
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A BILL TO

EXEMPT GOVERNMENT CORPORATIONS FROM BALANCE TAXES




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The people of the Commonwealth of Redmont, through their elected Representatives in the Congress and the force of law ordained to that Congress by the people through the constitution, do hereby enact the following provisions into law:


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PART I — PRELIMINARIES

1. Short Title and Enactment

(1) This Act may be cited as the ‘Government Corporation Exemption Act’

(2) This Act shall be enacted immediately upon its signage.

(3) This Act has been authored by Avaneesh2008.

(4) This Act has been co-sponsored by Representative HatManMC.

(5) This Act amends the following acts:

(a) Taxation Act

2. Reasons and Intent

(1) Government Corporations should not have to deal with balance taxes.

PART II — AMENDMENTS

3. Amendments

(1) The following shall be enumerated as §16 of the Taxation Act:

16 - Government Corporation Balance Tax Exemption
1. A Government Corporation shall be defined as a legal entity that is 100% owned by and distributes 100% of profits to one or a combination of the following entities:
(a) Government of Redmont
(b) Government Departments
(c) Government Entities as defined in the Legal Entity Act or subsequent acts
(d) Federal Reserve Bank of Redmont
(e) Towns
2. All Government Corporations may be tax exempt on application to the Department of Commerce

 

[xXTheoryXx]

Veto

PRESIDENTIAL VETO​

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This Act would insert a new §16 into the Taxation Act defining a Government Corporation as a legal entity wholly owned by, and distributing all profits to, the Government of Redmont, a Government Department, a Government Entity under the Legal Entity Act, the Federal Reserve Bank, or a Town, and would allow such entities to be tax exempt on application to the Department of Commerce.

I agree with the premise. Where a corporation is owned by the federal government and returns its profits to the federal government, taxing it moves money from one pocket of the Treasury to the other and achieves nothing. Had this Act done only what its title says, it would have my signature. It does not, and I withhold assent for three reasons.

First, the operative clause does not say balance tax. The heading of the new section reads 'Government Corporation Balance Tax Exemption' and the title of the Act promises an exemption from balance taxes, but §16(2) reads that a Government Corporation 'may be tax exempt'. Operative text governs over headings. On its face an approved application would exempt the entity from the chestshop tax at §9 of the Taxation Act, the pruning tax at §10, property tax at §11, and the eviction tax at §14.

The clearest illustration is the deposit tax. §5(1)(c) and §5(1)(d) of the Taxation Act provide that a Commercial Bank which receives a balance tax exemption pays a deposit tax of one percent monthly instead. Congress built that as a substitute levy precisely so that an exempt bank still contributes. A Government Corporation exempted in the unbounded terms of §16(2) would pay neither. A Town or the Federal Reserve Bank could hold a commercial bank, have it declared a Government Corporation, and operate it free of both the balance tax and the deposit tax while every private bank in Redmont pays the deposit tax in full. I am not willing to sign a competitive advantage of that size into the banking sector by accident of drafting.

Second, the definition reaches well beyond the federal government, and it is over-built. Part II §1(3) of the Legal Entity Act already provides that governmental entities are exempt from all taxes except as expressly otherwise defined by law, and Part II §1(5) already lists the executive departments, Towns, town entities, the Federal Reserve Bank, the judiciary, and both chambers of Congress as governmental entities. Three of the five limbs of §16(1) therefore restate an exemption that already exists in another Act. The only work this Act genuinely does is to extend that exemption to Incorporated Entities owned by those bodies, which are separate legal persons under Part III §11 of the Legal Entity Act and are taxable. The bill should say so plainly rather than mixing owners and subsidiaries into one list.

That over-breadth carries a real cost in the two limbs that are not internal transfers. A corporation owned by a Town, or by the Federal Reserve Bank, does not return its profits to the Treasury. It returns them to another balance sheet, and in the case of the Federal Reserve Bank, to our present creditor. Under Part II §1(1)(c) and §1(1)(d) of the Legal Entity Act a Town may create a governmental entity by its own bylaw or constitution, which may in turn own a corporation, which would then draw a federal tax exemption under this Act. Federal revenue would be determined by local instruments over which this government has no control. Nothing in the Act limits a Government Corporation to non-commercial activity, so a Town may incorporate a trading company and operate it free of balance tax against private competitors paying at the full rate.

Third, the exemption is granted once and cannot be taken back, and Congress has a better template of its own. Part VI §2(4) of the Legal Entity Act makes non-profits tax exempt only on conditions: they must keep transaction and accounting records, they must submit financial reports on a schedule set by the Department of Commerce, and the Department may withdraw the exemption for misconduct or non-compliance. §5(1)(b) of the Taxation Act does the same for financial institutions, allowing the Commerce Secretary or their delegate to repeal an exemption where the institution ceases to meet the requirements. This Act provides none of that. An entity that is later part-privatised, sold, or that ceases to distribute its profits to government would, on the face of the statute, keep the exemption it was granted.

That gap is the harder to justify because Congress has just supplied the tool to close it. Part IV §8(4) of the Legal Entity Act, inserted by the Financial Institutions Enforcement Act, requires an Incorporated Entity to disclose its beneficial owners to the Department of Commerce on request, and Part IV §5(6) abolished bearer shares so that ownership is now verifiable on the register. The Department can establish who actually owns a company. This Act asks it to grant a permanent exemption on the strength of ownership without requiring it to check once, let alone continuously.

I record the following for Congress and for the Office of Congressional Affairs.

The Act does not say whether the Department of Commerce must grant an application from a qualifying entity or may refuse one. 'May be tax exempt on application' can be read either way, and the answer determines whether the Department is a safeguard or a formality. Nor does the Act give the Department any power to make rules for the application. Part VII §3 of the Legal Entity Act confines the Department's rulemaking to docket procedures, company naming, the format of filings, and non-profit financial reports. There is no hook for this exemption, so a procedure, a deadline, an appeal, and a public register of exemptions granted would all have to be written into the Act itself.

The test in §16(1) is written in the present tense as an entity that 'distributes 100% of profits'. An entity that retains its earnings and distributes nothing arguably fails the definition. 'Wholly owned' is also left undefined against Part IV §4(4) and §4(6) of the Legal Entity Act, under which authorised shares that are not outstanding sit with the company itself and do not vote. Whether such a company remains one hundred percent government owned should not be left to argument.

§16(1)(a) refers to the Government of Redmont, which is the one term in the list that the Legal Entity Act does not itself define, while §16(1)(b), §16(1)(d) and §16(1)(e) are all already captured by §16(1)(c).

The new section uses '1.' and '2.' where the Taxation Act uses '(1)' and '(2)' throughout. This falls within §6(8)(a) of the Legislative Standards Act and I raise it only so it is corrected if this Act returns.

I would sign this Act with three changes. Confine §16(2) to balance taxes levied under §4 of the Taxation Act, and state expressly that it does not affect the deposit tax under §5. Add a provision allowing the Secretary of Commerce or their delegate to revoke an exemption where an entity ceases to satisfy §16(1), with a reporting obligation on the model of Part VI §2(4) of the Legal Entity Act. And either remove Towns and the Federal Reserve Bank from the definition or restrict the exemption to entities that do not trade in competition with private business. None of these is difficult and none touches the purpose of the Act.

My thanks to Avaneesh2008 for authoring this Act and to Representative HatManMC for co-sponsoring it. The problem it identifies is real and I want it solved.

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This bill has been vetoed and is hereby returned to Congress.

Theory Fontaine
30th President of the Commonwealth of Redmont​