Within hours, this picture was superceded in the media by an "everything is wonderful" snapshot of the six-year old child smiling in the arms of his father. We're supposed to assume Eli·n's as happy as a Cuban clam.

That's hard to believe. But we're also supposed to make a similar leap of faith when it comes to taxes.

It's tax season and the government has a gun pointed to your head, forcing you to fork over huge chunks of your wealth. But it's not just one gun—it's three or four. The feds, the state, the city, the property district.

But when the sun comes up, we're all supposed to be cheerful Stepford citizens, absolutely thrilled about doing our civic duty.

The problem is, our "civic duty" keeps getting more expensive, and many taxpayers don't realize it. It was appropriate that the feds took little Eli·n late at night. Governments do like to act under the cover of darkness, when it's hard to see what they're doing.

Heck, your taxes are done. The files are put away. Your CPA's check is in the mail. And the very last thing you want to think about is taxes.

Problem is, power-hungry, revenue-thirsty politicians, judges and bureaucrats actually do like to think about taxes all year long. In fact they like to think you're not paying attention, so they can raise taxes without simultaneously raising the ire of too many citizens. And even if you do notice and get angry, they're betting you'll eventually forget it about and happily pay up with an Eli·n-like smile.

They know that even the small portion of the population that tends tend to think long and hard about money issues still ignores taxes. The typical money-conscious consumer worries about getting the raise he's been promised. Or kicks himself for not having jumped on that recent Taipan pick that climbed 50% in a month.

But not too many people devote much attention to whether their tax burden is going up.

1. Continually find and execute strategies to pare down your tax bill;

2. Vigilantly monitor the latest moves by your federal, state, and local money grabbers. Yes, as your eyes are focused on the daily NASDAQ roller coaster ride, your elected representatives are trying to slip their hands deeper and deeper into your pocket.

We plan to give you in future issues what we've given you in the past: effective, shrewd—and legal!—strategies to cut your taxes.

But we'll also keep our eyes on the Night Movers, who are trying to raise your taxes faster than we can cut them for you.

Now, it's true that some more or less enlightened officials are actually trying to cut your taxes. You want to know about them too, because they need all the support they can get.

Even tax trends taking place outside your city, county, or state may be important to you, because those trends wend their way into your neck of the woods before you know it.

We've tried to give you this information in The State Tax Report, in which we rank the State Tax burdens from 1 to 50. But even as we were writing it, we realized that the subject of state and local taxes is a moving target. It seems that somewhere in the country, there's always some tax law being changed.

So we would like to take this opportunity—at a time when government officials would like to think you're not looking—to tour the country and see what's going on.

What are the current trends? Mostly, we see state and local governments continuing to find ways to feed their voracious habit. But there is some good news amidst the rubble.

Take Chattanooga, Tennessee. The city imposed a "franchise fee" of 5% of revenues on telephone companies operating in the city. Don't be misled by the fact this "fee" was imposed on a company. Raising "fees" on a business can hurt the company's stockholders, customers and employees.

Chattanooga officials called this levy a "fee" instead of a "tax", knowing full well that state law forbids cities from taxing providers of telecommunications services for the privilege of doing business in a city. In order to be valid, any charge would have to come under the city's police powers. These powers allow the city to defray the cost of providing services. In other words, if the fee was imposed merely to pay for certain costs incurred by the city, then it's not a tax. But if imposed to raise revenue, it is a tax.

According to the law, in order to avoid the stigma of being a tax the "fee must bear a reasonable relation to the objective to be accomplished". With this phrase, the state law gave Chattanooga a loophole you could drive seven trucks through.

A 1%, 2%, or 3% fee might very well have passed muster in the courts. But when BellSouth Telecommunications took this issue to the state's Court of Appeals, the court decided that a 5% fee was just too damn greedy, because it bore no relation to the burden on the city.

A court also came to the rescue of taxpayers in Jefferson County, Alabama. Back in 1967, the county decided to take its pound of flesh from everyone engaged in business within its borders. So it imposed an "occupational license tax" on businessmen. Trouble was, professionals such as lawyers, CPAs, and doctors—people who tend to be powerful in the community—already were required to pay a license tax to engage in their professions. So they were exempted from the occupational license tax.

It should come as no surprise that this "restraint" by the county did not last. Unable to contain its greed, twenty years after the initial tax was imposed Jefferson County tried to extend the tax to everyone—including those already paying license taxes.

This double tax was too much for the court, which struck the whole fee down because it violated state law. Now Jefferson County can't impose this tax at all. Don't shed any tears, though. The Alabama lawmakers will make every effort to pass a bill that will help Jefferson County bring back its "sock it to the businessman" tax.

That seems to be the case in Washington State.

Back in November, Washington's citizens voted for an Initiative called I-695. No, that's not a new expressway, although it affects the revenues available for roads. This measure repealed high and very unpopular automobile license fees and replaced them with a simple US$30-per-car annual tab.

Now, the supporters of this initiative weren't dummies. They realized that even if this provision passed, the state could simply turn around and increase some other tax, or create a new one.

So they added a second part to this measure. It required a public vote on any tax or fee increase. Think the taxpayers were being a bit paranoid? Well, even after the provision passed, the city council in a town called Lynwood, using a loophole in I-695, voted a 5% tax on movie tickets to replace revenue they lost because of the lower car tab.

I-695 seems like a perfectly reasonable initiative, a great example of citizens standing up and saying enough is enough. Right?

So how did lawmakers and others react to democracy in action? With hysteria, of course. Yes, you've seen it before. Any anti-tax movement is labeled radical, destructive, and the harbinger of Armageddon. Among the initiative's biggest opponents were unions (that's the way to stand up for your taxpaying members) and big business, who'd rather have individuals pay for the infrastructure they use. In fact, a spokesman for utility companies expressed a particularly disdainful view of taxpayers who supported the measure: "These people are radicals. It doesn't matter if they are left-wing radicals or right-wing radicals."

That's right. Anybody who wants to cut taxes is a "radical." Unfortunately, this view may reflect all too well the opinion of politicians, the mainstream media...and more than a few judges.

Of course the issue was taken to court.

And a Washington judge ruled that I-695 was unconstitutional.

The reasoning he pulled out of his hat was that the initiative improperly dealt with two separate issues. And I-695 was both an initiative and a referendum, also a no-no. Initiatives, you see, focus on specific legislation. A referendum allows citizens to veto laws that have been enacted. And I-695 was both. Can't have that.

True, even after ruling the law unconstitutional, he allowed the US$30 tab to stand for now until an appeal goes through. That's because it would be too complicated to go back to the old formula. But that's kind of strange, since the court also said that it was not within its power to uphold one part of the law and not the other. Go figure.

This case isn't totally finished. In fact, it's likely to go all the way to the U.S. Supreme court. Still, there are huge lessons to take from this, even if you don't live in Washington.

Not always.

Now, let's be clear about something. There are good reasons for challenging a tax and bad ones. Every day it seems there's another case where a tax "protestor" is laughed out of court for using all sorts of bogus arguments judges have heard for decades. So we're not suggesting you glom onto the nonsense peddled by quack tax "experts" of the type who continue to insist that the 16^th amendment—the one that imposed the income tax—is unconstitutional. That piece of pseudo-philosophical nonsense has been peddled in the courts for years. It's never succeeded. And if the courts don't buy it, you might as well move on to something else. Don't waste taxpayers' money by taking hopeless arguments to court.

On the other hand, we've seen states and localities continue to push the envelope of what constitutes a legal or illegal tax. And you have every right to force government to obey the law.

Trouble is, even then you won't always succeed.

For example, in Patchogue, New York, a property owner complained that the village imposed an illegal sewer tax on his property. This tax had been imposed on him since 1992. The taxpayer asked that the taxes he paid be refunded back to 1992, the first year he paid the tax.

Think the issue here is whether the tax was properly imposed? Could this be simply another wacko protestor wasting the court's time?

Well, we've got news for you. In this case THE VILLAGE ADMITTED THE TAX WAS ILLEGAL. Yet the court allowed the taxpayer to receive refunds only for tax years after 1996, but not for the earlier years. Why? Because he hadn't protested the tax when he paid it!

You see, the court figured that, by not protesting, the taxpayer was "voluntarily" paying the tax. To quote the court: "A payment of a tax or fee that is illegal must be made with an appropriate protest for the payment to be deemed involuntary."

Forget the fact that the taxpayer claims he protested the tax all along. The court bought the village's argument he hadn't "formally" protested the tax until November 1997. According to the court, "A formal challenge requires more than a general oral complaint to a government official." So the moral of the story is that, if you think you're being taxed illegally, complain in writing to the appropriate officials, even if you must pay in the interim to avoid potential penalties. But, please, if you do complain, make it a valid complaint, backed by bona fide legal research (preferably with the help of a CPA or attorney). Don't give the courts more reasons to think that complaining taxpayers are total dunderheads.

Let's finish with a little good news.

Take Maryland, one of our Tax Hell Holes in the ranking compiled by our State Tax Report. Yes, there's actually some tax hope in this mostly one-party (Democratic) state. The state's inheritance tax, which can be as high as 10%, will no longer apply to lineal descendants (that is children, grandchildren, etc.), parents, grandparents, and siblings. (Spouses were already exempt). This is one small step in the right direction. In addition, the state is copying a trend started by a few other states. It is providing a one-week sales tax holiday for clothing and shoes priced under US$100. But this won't take place until next August (plenty of time for the legislature to change its mind).

Despite these encouraging signs, it's still a little distressing that more tax relief was not provided, in light of the state's huge US$1 billion surplus. And the state is still aggressively going after "use taxes" owed by Marylanders who buy products—particularly furniture and cigarettes—out of state.

Some Rhode Islanders are getting a bit of relief from property taxes. Property owners can seek relief if their income doesn't exceed a certain amount. Up until the 1999 tax year, that amount was US$25,000. Now, it's US$30,000. Because of this increase in the limit, applications for relief have increased by 18%.

Finally, in Virginia, Governor Gilmore kept a campaign promise by vetoing several laws that would have increased taxes. You might remember Gilmore as being one of the most outspoken opponents of an Internet tax. Is it too late to draft a "Gilmore for President" campaign?

Of course, we're kidding about that last comment. After all, we're a nonpartisan publication. Besides, since Gilmore opposes taxes, doesn't that mean he's too much of a "radical"?

To order a copy of The State Tax Report, which ranks the statesק through 50—on their overall tax burden, click here or call 800-433-1528. The price is US$49.95. We pay for shipping. Offer not valid outside of the continental U.S.

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