Substance and Form in State Taxation

Abstract:     
INTERPRETATION MATTERS COLUMN:
In the interpretation of tax statutes, a venerable principle is that “[t]axation should move in an atmosphere of practical realities rather than amid the intricate and wooden concepts [of legal formalities].” This principle is familiar in federal taxation, and it holds no less sway in state and local taxation. Indeed, the idea that the substance of a transaction usually controls over the form of the transaction is not confined to taxation; it is a principle of American law generally.

The principle commands that the underlying reality of the events usually determine tax consequence; the forms or labels attached to the events by the parties themselves (by contract or otherwise) or even by non-tax law usually are not determinative. This column will explore the “substance versus form” rule from three perspectives: (1) justification for the rule, (2) the reach of the rule and examples of its application in state and local taxation, and (3) use of the rule in favor of taxpayers.

Number of Pages in PDF File: 8

Accepted Paper Series