Is your business in gray economy? State declares you ‘public nuisance’

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Light from a Chattanooga high-rise is reflected on the dull face of a parking garage. Most businesses today operate in an official, licensed economy supervised by the state. (Photo David Tulis)

This afternoon I interviewed a city council candidate reputed to be the most free market in his outlook (more next week). One aspect of the conversation that stood out is the novelty of seeking to apply what he referred to as the “ideology” of liberty and the free market to local government.

We can readily see the concept work vis a vis the federal authority. With Uncle on the prowl and constantly extending his claims, liberty is easy to discuss. When it’s attacked, we can understand it, defend it.

By David Tulis

But how to think about free markets as regards city council or county commission?

The best way for us to look at how the state’s general assembly controls that ostensibly free people of Tennessee. Its power is exercised through licensure, which allows for an economic grid that’s fair to call state economy. Licensure is an aspect of the state’s police power, which it exercises for the public safety, ostensibly.

Most enterprises in Chattanooga are licensed by the state through city and county governments. Weekly, the Chattanooga Times Free Press publishes new licenses for all to see. A license is permission to do an act which, without it, would be illegal. Such an act would be either a crime or a tort against a lawful claim by an authority.

Malefactors to be hounded

Not all businesses are required to be licensed, just those in the Tennessee Code Annotated’s various lists. If a person is said to be liable to obtain a license and doesn’t have one, he’ll be thrust into the open, exposed; he will be hounded by the sheriff and his deputies as a “public nuisance” (67-4-202).

Against one who “presumes” to sell goods or “exercise any privilege” without obtaining permission, Bill Knowles, the county clerk, is authorized to issue what’s called a distress warrant. A deputy can seize the violator’s goods and sell enough to pay the tax due two times over. Or Mr. Knowles can sue the person in chancery or circuit court. (TCA 67-4-109)

Not only does the free man have the clerk to worry about. The commissioner of revenue can authorize — no, “it is the commissioner’s duty,” the law says (italics added) — to issue a distress warrant to collect the tax, interest and penalties (67-4-110). The law makes the clerk liable for any privilege tax debt he does not collect. (67-4-605)

If an entrepreneur otherwise liable to beg permission evades a distress warrant, the state’s attorney is authorized to “file a bill in a court of proper jurisdiction” to enjoin such person from continuing to exercise the privilege he has stolen. (67-4-216)

Licensure and taxation are different, but connected. Tennessee makes people subject to taxation and licensure “liable” to pay taxes. Liability means duty. It is an explicit withdrawal of liberty from a person, and a replacing of it by a duty. That duty is to keep records and pay the tax. Any tax collector who is not aggressive in chasing down every gray market operator among immigrants from Mexico in Chattanooga forfeits F$250 to the state and may “be subject to ouster proceedings.” (67-4-211)

The state has made violation of its licensing provisions a crime, a misdemeanor subject to imprisonment of up to 1 year. It is unlawful for anyone to “to aid, abet, direct, cause or procure any of such person’s officers, agents, or employees” from violating the law (67-4-220). An offense against the revenue commissioner tolls by the day; each day of noncompliance is a distinct offense. If the state or county prosecutes its case civilly, it is required to meet a lower threshold in the evidence (51 percent). If it prosecutes the entrepreneur criminally, it must meet the higher “beyond a reasonable doubt” standard, which would make success much harder to obtain. So it sues civilly.

I cannot remember a single such case having been made against any free market actor in Chattanooga in my 25 years in the local newspaper business. Good!

Original licensing law defended local economy

Who are some of the professions and lines of work targeted for licensing? Outfits that sell food or beer, lumber, hay/grain, feed, gasoline, motor homes, clothing/shoes, hats, home furnishings, prescription drugs, sporting goods, toys, legal services, accounting. Numerous professions have been claimed as the exclusive province of state. Accountants, investment advisers, brokers, engineers, landscape architects, brokers, engineers, chiropractors, dentists, optometrists, physicians and others.

Originally, licensing was used by local government to regulate people who entered the local economy from distant places. Licensing ensured the tidiness and decency of local economy against damage caused by hucksters and others who had no local ties and who might more readily cheat them. Today’s statute describing this original category emits the odor surrounding horse-drawn wagons and cotton candy of the circus.

It is the duty of every constable of a district to demand to see the receipt for state and county privilege taxes of every manager of a circus, menagerie, sideshow, sleight of hand or legerdemain, or any other exhibition for profit, of persons selling patent rights, and of every peddler of any article whatever, whether on foot, in vehicle, or on horseback.

Obtaining a business license is routine today, even, I suppose, among people whose line of work doesn’t appear on the list. The third paragraph of the “Business Tax Act” (TCA 67-4-701) offers a note of deference to the exercise of constitutional right to make a living, that which remains to us:

It is the legislative intent, within the framework of this part, to recognize that there are limitations upon state taxation imposed by the constitutions of the United States and of this state and not to impose the tax where prohibited by the constitutions; but it is intended to impose that tax to the extent permitted under such constitutions and the words of imposition used in this section. (italics added)

In determining whether one is included with or excluded from the ambit of a tax statute, doubt should be resolved in favor of the taxpayer and against the taxing authority, courts have decided. ‡ Maybe there is hope for the free market yet.

‡ Heritage Mem. Gardens Mausoleum & Mem. Chapel, Inc. v. Dunn, 541 SW.2d 147 (Tenn. 1976)

One Response

  1. Paul Hein February 24, 2014 Reply

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