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Tag: Tax

Washington and Lee Law Review - Tax


by Bryan T. Camp

At a doctrinal level, the subject of this Article is timely. During this time of the coronavirus pandemic, casinos have been closed and large populations have been subject to stay-home orders from local and state authorities. One can reasonably expect a large increase in electronic gaming and thus an increased need for proper consideration of its taxation. This Article argues for a cash-out rule of taxation.

At a deeper level, the subject of this Article is timeless. Tax law is wickedly complex for a reason. This Article explores that complexity using the example of electronic gaming. It grapples with the source of that complexity: an inherent and unresolvable tension between economic theories of income and the practical needs of administering a system of taxation to a large population in a democracy. That tension led some scholars to argue for a standards-based approach to taxation. This Article considers and rejects that argument. Legal rules are necessary to mediate between theory and practice. Hence, this Article demonstrates the continued relevance and importance of doctrinal analysis in legal scholarship.


by Eric C. Chaffee

By understanding the corporation as a collaboration between the government and the individuals organizing, operating, and owning the corporation, the impermissibility of aggressive corporate tax avoidance becomes apparent.The history of the debate over the essential nature of the corporation is substantial. This debate has been reinvigorated by the Supreme Court’s recent opinions, Citizens United v. Federal Election Commission and Burwell v. Hobby Lobby Stores, Inc., which explore the scope of corporate rights. This article examines how essentialist theories of the corporation should inform the permissibility of corporate tax avoidance and argues that aggressive corporate tax avoidance is legally impermissible based upon the essential nature of the corporate form.


by Darien Shanske

Local governments have long used special financing districts to build infrastructure. If a local project, say building a pocket park, is likely to increase the values of properties very close to the park, then why should those properties not pay for the park in the first place? Though efficient and fair in many cases, the use of these districts can also be problematic. For instance, it seems likely that wealthier residents, with higher property values to leverage, are especially likely to use these districts effectively. It has also been the case that developers have used these districts speculatively, which had serious repercussions during the last recession. Christopher Odinet develops an additional, and important, critique of these districts. Odinet observes that these districts obtain a lien on benefiting properties, and that this lien takes priority over the liens of conventional lenders. Odinet then argues that this super-priority should only be honored if the district has served some substantial public purpose.

In this short Response, I agree with Odinet that these districts are problematic, but wonder whether his solution is the best one. This is because traditional lenders will generally know about these districts before lending. Furthermore, his solution only kicks in if there is an event of default, which is unusual, and thus, this solution does not do much to counter the run of the mill socioeconomic stratification that these districts often enable. I argue that an ex ante approach limiting the use of these districts therefore seems preferable. I conclude with the argument that, despite all their flaws, these districts should not be abolished outright. Local government finance is a dynamic system and the absence of any tool, even one prone to abuse, can have severe consequences, as illustrated by the recent history of California.


by Christopher K. Odinet

Although special taxing districts have received significant consideration by legal scholars in the past, this Article helps draw a more focused attention to the blatant abuses and negative effects caused by the use of special taxing districts in the purely private real-estate development setting. This process undermines the basic notions of vested property rights without implicating constitutional considerations. The lender whose loan enables the developer to buy the land traditionally receives a first priority mortgage on the property. Except in rare cases, the lender would refuse to make that loan without a first priority lien, which ensures that the debt will be paid before others whose liens or other interests in the property arose after the first mortgage loan was made. However, the law gives the special taxing district lien, imbued with public power but used for purely private purposes, superpriority. Even though the developer’s nonpayment of the assessments occurs only after the bank first obtains its mortgage, the mortgage is nonetheless inferior to the lien. While this type of subordination has merit in the context of general property taxes imposed by a municipality for purposes of education, police protection, and other public services, it represents an extreme injustice in the context of purely private, profit-driven developments. Despite this, there is no requirement that the special district or the municipality that created it pay just compensation to the first secured party for the impairment to its rights in the property. And lastly, the use of special taxing districts for private real estate developments has a wider adverse effect on community lending as a whole. Because real estate lenders cannot rely, as they have traditionally in the past, upon a first lien mortgage, many will no longer make loans for projects in areas that are subject to special taxing districts, no matter what legitimate and larger societal good they serve. Further, because of the potential to be primed by the district’s super lien, financial institutions at the secondary mortgage market level—who play such a critical role in making a liquid residential mortgage market possible— will likely refuse to purchase mortgages that are secured by properties within special districts, something that has already occurred in recent, similar situations involving PACE financing. While this has the potential to kill off effectively the use of purely private real estate development special districts, it will have the unintended consequence of eliminating the use of these financing tools in scenarios where they are truly warranted, such as in projects that improve poor neighborhoods or economically depressed areas where no conventional lender will extend credit. By doing so, a whole sector of viable community development financing will be utterly abolished.


by Jay A. Soled & Mitchell M. Gans

For the vast majority of the twentieth century, trusts served two pivotal roles. The first was as a vehicle to help mitigate federal and state estate tax burdens, the rates of which could be quite significant. The second was to assist in asset preservation, safeguarding trust beneficiaries from their profligacy, former spouses, creditors, and the like.

At the start of the twenty-first century, Congress passed legislation that curtailed the impact of the federal estate tax, and many state legislatures have followed suit, either eliminating or significantly reducing their estate taxes. As a result of these legislative changes, trust instrument reliance to mitigate transfer tax burdens is no longer a commonplace objective. Instead, the role of trusts has shifted entirely toward asset preservation, buoyed by state legislative reforms that facilitate fulfillment of this role.

However, state legislative reform measures that are designed to strengthen the asset preservation element of trusts are replete with problems. In particular, they drain government coffers as they pit states against one another and the federal government; furthermore, insofar as they promote an aristocracy-like environment (where wealth cascades down from one generation to the next), they thwart economic mobility, an essential component of our nation’s financial fabric. Using three specific examples of states’ aggressive efforts to attract trust formation within their borders, this analysis demonstrates the shortcomings associated with the evolving role of trusts in asset preservation and its corrosive effects. Because too much is at stake for this role to be left unchecked, this analysis recommends several viable reforms.