THE SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
Cite as Sigrah v. Kosrae,
6 FSM Intrm. 168 (App. 1993)

[6 FSM Intrm. 168]

THEODORE SIGRAH and
VERNON YOUNGSTROM,
Appellants,

vs.

STATE OF KOSRAE,
Appellee.

APPEAL CASE NO. K1-1991

OPINION

Argued:  October 12, 1992
Decided:  August 30, 1993

BEFORE:
     Hon. Andon L. Amaraich, Associate Justice, FSM Supreme Court
     Hon. Richard H. Benson, Associate Justice, FSM Supreme Court
     Hon. Martin G. Yinug, Associate Justice, FSM Supreme Court

APPEARANCES:
For the Appellant:     Harry Seymour (argued)
                                    Delson Ehmes, Esq. (on the brief)
                                    Micronesian Legal Services Corporation
                                    P.O. Box 38
                                    Lelu, Kosrae  FM  96944

[6 FSM Intrm. 169]

For the Appellee:      Tim Stumpff, Esq. (argued)
                                    Assistant Attorney General
                                    Glenn Jewell, Esq. (on the brief)
                                    Acting Attorney General
                                    Office of the Kosrae Attorney General
                                    P.O. Box AG
                                    Lelu, Kosrae  FM  96944

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HEADNOTES
Federalism ) National/State Power; Taxation ) Constitutionality
     The national government has the exclusive power to tax income and imports.  The power to levy other taxes, unless specifically barred by the Constitution, is an exclusive state power.  Sigrah v. Kosrae, 6 FSM Intrm. 168, 169-70 (App. 1993).

Federalism ) National/State Power; Taxation ) Constitutionality
     A transaction tax oriented toward individual transactions and not total income, and only triggered by the transactions it covers, even though paid by the vendor, is analogous to a selective sales tax and is not an unconstitutional encroachment on the national government's exclusive power to tax income.  Sigrah v. Kosrae, 6 FSM Intrm. 168, 170 (App. 1993).

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COURT'S OPINION
RICHARD H. BENSON, Associate Justice:
     The State of Kosrae imposes a "transaction tax" of five per cent on the lease of offices or dwelling places, on lodging, on meals, on motor vehicle rentals, and on the rental of film or video tape.  Kosrae Code 9.301.  Appellant Sigrah rents homes and appellant Youngstrom leases office space.  The issue presented is whether the Kosrae transaction tax is void as an unconstitutional encroachment upon the exclusive power of the national government to tax income.  FSM Const. art. IX, 2(e).  The trial court concluded that the Kosrae transaction tax was not an income tax and therefore constitutional.  Youngstrom v. Kosrae, 5 FSM Intrm. 73 (Kos. 1991).  This appeal followed.  We affirm.

I.
     The facts are not disputed.  The only question presented is one of law.  Issues of law we review de novo.

     The power to tax income is expressly delegated to the national government. FSM Const. art. IX, 2(e).  "A power expressly delegated to the national government . . . is a national power."  FSM Const. art. VIII, 1.  The power to tax income is not among those powers that can be exercised concurrently by the national and state governments.  See  FSM Const. art. VIII, 3.  We have previously concluded that the power to impose taxes upon imports is an exclusive national power, Innocenti v. Wainit, 2 FSM Intrm. 173, 181-82 (App. 1986) (construing FSM Const. art. IX, 2(d)).  We now conclude that the power to tax income is also a power reserved exclusively to the

[6 FSM Intrm. 170]

national government.

     These holdings are in harmony with the intent of the framers of our constitution. They intended to "allocate[] the import and income taxing powers exclusively to the . . . central government."  SCREP No. 38, II J. of Micro. Con. Con. 863, 865. The framers contemplated that "the taxing powers allocated between the national and state governments should be exclusive and distinct."  Id. at 864.  See also Innocenti, 2 FSM Intrm. at 182-83 (state and national tax powers to be mutually exclusive).  Put another way, the national government has the exclusive power to tax income and imports.  The power to levy other taxes, unless specifically barred by the Constitution, is an exclusive state power.  "A power not expressly delegated to the national government or prohibited to the states is a state power."  FSM Const. art. VIII, 2.

II.
     Thus, if the Kosrae transaction tax is actually a disguised income tax then it is an unconstitutional state encroachment on an exclusive national power.  If it is not, it is a valid exercise of an exclusive state tax power.

     The parties in the present case agree that the power to impose a sales tax belongs to the states.  The appellee argues that the Kosrae transaction tax is analogous to a sales tax.  The appellants assert that it is not.

     A sales tax has been characterized as a tax that is imposed on the buyer instead of the seller; that is "oriented toward individual transactions, not total income," and applied uniformly to the transactions it covers; and that is triggered only by the transactions it covers and not other forms of income.  Ponape Fed'n Coop. Ass'ns v. FSM, 2 FSM Intrm. 124, 127 (Pon. 1985).  In contrast an income tax is a tax based on income, gross or net.

     The Kosrae transaction tax is imposed on the seller, lessor, or renter of the goods or property named in the statute, not on the user or consumer.  However, a sales tax may be imposed on either the seller or the buyer,  68 Am. Jur. 2d Sales and Use Tax 6, 7 (1993), so that point is not dispositive.  The Kosrae transaction tax is oriented toward individual transactions and not total income,1 and is only triggered by the transactions it covers.2   It is thus analogous to a selective sales tax and is not an unconstitutional encroachment on the national government's exclusive power to tax income.

     The judgment is affirmed and this appeal is accordingly dismissed.
 
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Footnotes:
 
1.  In this regard the appellants may have been misled by the Kosrae Transaction Tax Quarterly Return form, a copy of which they attached to their brief.  To compute the tax it asks for total revenue for the period, and then subtracts revenue not subject to the tax to arrive at "Gross Revenue Subject To Tax." While this may be an unfortunate choice of method and wording a regulation cannot extend the reach of the statute that authorizes it.  1 Am. Jur. 2d Administrative Law 132, at 944 (1962).  The state may be wise to change its forms.
 
2.  The appellants argue that the transaction tax is a tax on their total revenue. While this may be factually true it is the result of their choice to derive their income solely from transactions covered by this tax.