California: You owe us taxes on those IOUs

posted at 10:42 am on August 9, 2009 by Ed Morrissey

Bruce McQuain calls this the theater of the absurd, but that implies humor and entertainment value. Unfortunately, California’s attempt to get hard cash in taxes based on payments to businesses it made with imaginary money is neither humorous or entertaining.  It does demonstrate the complete disconnect from reality suffered by the state’s political class in Sacramento:

Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors’ federal class action claims the state is trying to balance its budget on their backs.

Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California “paid” her with an IOU that two banks refused to accept – yet she had to pay California sales tax on the so-called “sale” of the uniforms.

California wants Baird and her colleagues to pay taxes on money she never received.  The state of California hasn’t paid her the money they owe her, but they want her to pay the money she owes them.  In any other situation, a court would laugh this one right out the door, and perhaps the federal court will do so.  Baird would have no chance at all in a state court.

When governments start issuing IOUs instead of actual US currency, they are legitimizing that kind of transaction for themselves.  To give Baird a pile of literally worthless paper and then object to Baird responding in kind is the worst kind of hypocrisy.  Either California’s government deals in scrip, or it doesn’t, but the rules should be the same in either direction.

It’s difficult to think of a more breathtakingly stupid series of actions in government than what we’ve seen in California over the last few months.  This one is practically pathological.


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The holders of the script iou’s should list them as bad debts
and then they would not have to pay taxes on them.

the original on August 9, 2009 at 12:05 PM

I

s this a change of heart, or just another inconsistency?

DFCtomm on August 9, 2009 at 11:57 AM

It’s the learning curve for liberals.

Wakey wakey time!

Unfortunately, even things like this won’t wake them all up.

Spiritk9 on August 9, 2009 at 12:06 PM

Can the states convene to get rid of the federal government?

Tessa on August 9, 2009 at 11:34 AM

Yes. It’s called a Constitutional Convention.

Amendment X on August 9, 2009 at 12:14 PM

They could even send the SEIU goons out into the hitherlands to collect. /evil grin

Yoop on August 9, 2009 at 11:58 AM

Won’t the government be surprised to find out how many practicing alchemists there still are in the US. We will pay with lead. /very evil grin

chemman on August 9, 2009 at 12:15 PM

Either California’s government deals in scrip, or it doesn’t, but the rules should be the same in either direction.

Oh for God’s sake Ed wake up. California, and quite possible the entire Federal Government dont give a rats a$$ about fair of just, all they care about is cash money, it’s all they have every cared about and its all they ever will care about.

doriangrey on August 9, 2009 at 12:16 PM

Amendment X on August 9, 2009 at 12:14 PM

The danger of a constitutional convention is that nothing is out of reach. They can chage anytying in the constitution they want and we have few conservatives running the states these days.

boomer on August 9, 2009 at 12:18 PM

I thank Hugh Hewitt for this. He was pushing the Gubernator so hard that people like me, that voted for Tom McClintock, were told in so many words, “You have no chance so STFU!” I still voted for McClintock but we were forced to accept a Grey Davis CLONE for office! THANKS HUGH!!!

Vntnrse on August 9, 2009 at 11:02 AM

Some years back I was in an email group called “Brushfire Alert”. The moderator, Chuck Muth, and I had a long running arguement about Arnold versus Tom – he for Arnold, me for Tom. The very last thing we needed at the time was a celebutard bringing an over developed sense of self importance to the stage of California politics. Any “Republican” at all costs was his contention. I guess we got “at all costs” afterall.

oldfiveanddimer on August 9, 2009 at 12:25 PM

Amendment X on August 9, 2009 at 12:14 PM

The danger of a constitutional convention is that nothing is out of reach. They can chage anytying in the constitution they want and we have few conservatives running the states these days.

boomer on August 9, 2009 at 12:18 PM

The rules are more strict for a constitutional convention. I don’t remember the exact numbers, but for example if it takes 51% of votes to pass some bill into law, and 60% to over-ride a veto, it’d take 75% of the vote to pass something into the constitution. Again, I know those number aren’t right, it’s the general idea though.

Even then, it’s still a dangerous proposition. I do believe zerobama will try to get a convention going before he loses the majorities. If he loses the majority in 2010, he’s going to try it before 2012 using thuggery to get what he wants in there. First will be abolishing presidential term limits of course, then abolition of the right to assembly, and the right to bear arms.

Then America dies.

Spiritk9 on August 9, 2009 at 12:26 PM

California is the Democratic front runner foreshadowing what the entire nation can expect from the socialistic Obama administration. Taxation on money not yet received is the last insult to injury.

My view of politicians has changed from the disgust and loathing that one gets when one discovers a spider in the bathroom to a deep, burning resentment and hatred for people who are foisting an spectacularly bad health insurance program upon us-a program so inferior that the hypocrites who are proposing it wouldn’t even think of using it themselves. I sometimes fantasize that the 911 terrorists would have actually done us a favor had they taken out the capitol building instead-with congress in full session.

MaiDee on August 9, 2009 at 12:33 PM

Unfortunately, California’s attempt to get hard cash in taxes based on payments to businesses it made with imaginary money is neither humorous or entertaining.

Of course it’s funny and entertaining! It’s also a stark reminder of the rapacity of left-”liberalism,” but that need not stop anyone from laughing as we shake our heads! Ed Morrissey, the Americans will get their sham “liberals” out of office sooner with ridicule and hilarity than without.

Kralizec on August 9, 2009 at 12:37 PM

The danger of a constitutional convention is that nothing is out of reach. They can chage anytying in the constitution they want and we have few conservatives running the states these days.

Why go to the trouble? Our lawmakers have proven that they merely need to pack the books with so many laws and regulations that we’re forced to debate what the meaning of the term “is” is.

Then just pack the courts with a bunch of Marxist activists to uphold all the unconstitutional laws on the books and you’re golden. Baby steps to tyranny. It took em nearly a century but we’re just about there.

Obama has spoke blatantly of his frustration that the Constitution places limits on the powers of the federal government. He and his accomplices in the Congress have no intention of upholding constitutional law when it doesn’t suit their agenda. Eventually it will be accepted as an outdated relic, or just the national equivalent of the Pirate Code (more like guidelines than actual rules).

TheMightyMonarch on August 9, 2009 at 12:39 PM

Amendment X on August 9, 2009 at 12:14 PM

The danger of a constitutional convention is that nothing is out of reach. They can chage anytying in the constitution they want and we have few conservatives running the states these days.

boomer on August 9, 2009 at 12:18 PM

Agreed.
I just answered the question.
However, we can always create two different nations: Gulagsville and Freedomland.

Amendment X on August 9, 2009 at 12:47 PM

The rules are more strict for a constitutional convention. I don’t remember the exact numbers, but for example if it takes 51% of votes to pass some bill into law, and 60% to over-ride a veto, it’d take 75% of the vote to pass something into the constitution. Again, I know those number aren’t right, it’s the general idea though.

Demand a return to the constitution as written except for one small change. (Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.

Substitute liberal.progressive for other persons and we can repair the damage.

larvcom on August 9, 2009 at 12:49 PM

It’s the people I feel for. The regular citizens, and small business owners. They’re the ones getting screwed by a bunch of imbeciles, who think they are the answer to the worlds problems. Not only in California, but across this nation.

Governments no longer are about the people. It’s become a cesspool venue, to get rich, and bilk millions, from the hard work, and honesty of the people.

capejasmine on August 9, 2009 at 1:02 PM

Does this amount to the state printing its own money, then, if an IOU counts as a ‘sale?’

If you can tax it, it has to have value in itself, doesn’t it?

snickelfritz on August 9, 2009 at 1:12 PM

… [snip] getting screwed by a bunch of imbeciles, who think they are the answer to the worlds problems. Not only in California, but across this nation.

capejasmine on August 9, 2009 at 1:02 PM

And in any other country where ideological purists with ‘liberal progressive’ values have been allowed to dominate the political conversation.

YiZhangZhe on August 9, 2009 at 1:22 PM

***
Anyone doing business with the state of Kalifornia should demand CASH ON THE BARRELHEAD before providing them anything. No food, no power, no water, no road repair, no computer system repairs, no paper, etc.
***
And send them an IOU stating that when the state IOU is paid the taxes will be paid. And move out of the failed state.
***
John Bibb
***

rocketman on August 9, 2009 at 1:40 PM

This one is practically pathological.

Practically? No, it’s absolutely pathological, no doubt about it.

Hog Wild on August 9, 2009 at 1:42 PM

So California is now trying to tax nothing. What percentage of zero is greater than zero? I’d tell them to go to hell on the next thing smoking. Damned fools.

jimmy2shoes on August 9, 2009 at 1:49 PM

The state of California hasn’t paid her the money they owe her, but they want her to pay the money she owes them.

And if you protest getting the screw job you will be labeled an extremist worthy of a beating.
It is your patriotic duty to shut up, bend over an grab the ankles! And do not forget to say “Thank you Sir, may I have another one please!”

JellyToast on August 9, 2009 at 2:39 PM

The PRC (People’s Republic of Colleefor-neee-ah) have issued their own money, the IOU, then proven its worth by refusing to accept it for debts owed.
Maybe if we all agree to jump up and down for a while, they’ll fall off into the ocean.

TinMan13 on August 9, 2009 at 2:58 PM

The holders of the script iou’s should list them as bad debts
and then they would not have to pay taxes on them.

I’m afraid that isn’t true. The state’s position is that the sale took place, and the tax on the sale is due and payable, regardless of whether the debt created by the sale is ever actually paid. The goods/services were delivered, which creates the taxable event. Declaring the debts bad later would cause a reduction in income tax, but would not negate the fact of the sale for the purposes of determining the sales tax owed.

There is actually a chance that a Federal court will rule against the taxpayer on this one. The failure of the buyer to pay off the debt does not discharge the retailer’s duty to pay the tax on the sale. That the buyer in this case happens to be the state collecting the tax may not matter.

(As stupid as that sounds.)

The Monster on August 9, 2009 at 3:05 PM

Then America dies.

Spiritk9 on August 9, 2009

Barry first.

SKYFOX on August 9, 2009 at 3:26 PM

Then America dies.

Spiritk9 on August 9, 2009

Barry first.

SKYFOX on August 9, 2009 at 3:26 PM

I think there will be alot of Americans dying before America dies.

cjs1943 on August 9, 2009 at 3:32 PM

File a theft complaint against the State of California when they don’t honor their IOU for the tax bill.

Then move your business out of state, and sue them in Federal court for the money they owe you.

I think anyone who does anything other than cash and carry with the State of California is a fool at this point.

Kristopher on August 9, 2009 at 3:48 PM

What exactly do they do with all this money? I know teachers, firefighters, police officers and others working for state and local government don’t get paid that damn much. The police and disaster relief agencies never seem to have the equipment they need. Teachers spend a lot of their own money for their classrooms.

All of these states seem to have holes in the bottoms of their fiscal buckets-some are just bigger than others.

Dr. ZhivBlago on August 9, 2009 at 4:05 PM

Real money taxes demanded by CA on fake money they issue? Why worry about such absurdities, as long as you don’t live in CA, right? Have no fear, you’ll be paying for CA’s incompetence soon enough! There’s no reason why you should only suffer from your own state’s incompetence and the federal government’s blundering of spending our way out of debt, when you can get the added bonus of funding the most consistently massive budget deficit by state government in the country too!

Welcome to being a Californian.

Weebork on August 9, 2009 at 4:36 PM

Raises an interesting question in my mind: why does a state collect sales tax on transactions in which it is the purchaser? The money simply goes from the state to the vendor and back to the state through a highly inefficient mechanism, taxes.

johnsteele on August 9, 2009 at 5:10 PM

If California demonstrates the future of the rest of the country, let’s just go ahead and kill ourselves before we get there.

applebutter on August 9, 2009 at 5:58 PM

OK Mexico, you can have Kalifornia, PLEASE.. take it.

Yakko77 on August 9, 2009 at 6:49 PM

I know teachers, firefighters, police officers and others working for state and local government don’t get paid that damn much.

I’ll put it to you this way. Both my parents were state employees. My mother was a teacher for nearly 40 years, and my father worked for LLNL (part of University of California) for about 25 years:

-They both retired well before age 65.

-They take in about 90-100% of their salary between their generous state pension and Social Security.

-They have top-of-the-line health care for the rest of their lives. My mother recently underwent radiation therapy for breast cancer and paid a whopping $15 out of pocket.

-They were able to afford a spacious 4-bedroom house in a nice suburb of San Francisco, sold it at the peak of the housing market for over eight times what they paid for it, and now live on a 5-acre ranch with a custom-built home and a pool in a quiet little town two hours from Yosemite.

Starting to see where all that money is going?

We can also take into consideration our overpaid state legislators, who get $1000-a-month car allowances, full staff and office facilities, gold-plated benefits and pensions, and housing allowances. Or we can also talk about the myriad committee positions which pay six figures to well-connected leeches to work five days a year. You know, the kind of well-paying non-jobs the First Lady enjoyed in Chicago.

TheMightyMonarch on August 9, 2009 at 7:46 PM

I am laughing so hard that I am crying.

Vashta.Nerada on August 9, 2009 at 8:59 PM

I imagine this is all quite an incentive for businesses to move to California and do business with the state, eh?

You might think this was the stupidest thing a state government has done, but there’s always tomorrow to look forward to.

Tantor on August 9, 2009 at 9:47 PM

Unfortunately, even things like this won’t wake them all up.

Spiritk9 on August 9, 2009 at 12:06 PM

Nope. And they will blame the (R) after Schwartzy’s name, even though he’s as much a Democrat as anyone.

Grafted on August 9, 2009 at 11:47 PM

It’s difficult to think of a more breathtakingly stupid series of actions in government than what we’ve seen in California over the last few months. This one is practically pathological.

I don’t know about “pathological,” but as far as their political careers go, their recent actions may easily be “suicidal.”

Blacksmith on August 10, 2009 at 2:29 AM

I have no sympathy for the comrades in Kalifornia. They did this to themselves. Try NOT voting for the likes of Pelosi and Waters.

hogfat on August 10, 2009 at 8:16 AM

Raises an interesting question in my mind: why does a state collect sales tax on transactions in which it is the purchaser? The money simply goes from the state to the vendor and back to the state through a highly inefficient mechanism, taxes.

johnsteele on August 9, 2009 at 5:10 PM

Compared to other forms of taxation, sales taxes are actually a very efficient, easily understood, easily implemented form of taxation.

When the transaction involves the state the money does indeed go in a circle as you noted but this is far simpler and more efficient than would be a system of exceptions for transactions that invole the state.

YiZhangZhe on August 10, 2009 at 9:36 AM

Reminds me of ehwn you pay for some small item in Mexico using USD. You inevtiably get your change in Pesos.

Hucklebuck on August 10, 2009 at 2:19 PM

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