Opinion ID: 619605
Heading Depth: 1
Heading Rank: 9

Heading: Tax = 23% × [2.25 × P ] = 51.75% × P.

Text: Rewritten in this way, the tax base is profit alone. This tax base, PPL posits, would not offend the gross receipts requirement because the starting point for calculating profit is gross receipts. However, changing the tax rate in this way to avoid a problem with the tax base would read the gross receipts requirement out of the regulation. This we decline to do. An example from the Treasury regulation illustrates why our law does not tolerate such a mathematical maneuver. In the example, another country imposes a tax on the extraction of petroleum. Treas. Reg. § 1.901-2(b)(3)(ii), Ex. 3. The country deems gross receipts to equal 105% of the market value of the petroleum extracted. That is, the starting point for the tax base is 105% of each affected company's gross receipts from petroleum. The regulation disallows a credit for the tax because it is designed to produce an amount that is greater than the fair market value of actual gross receipts. Id. As the tax would not even be creditable up to the amount imposed on 100% of gross receipts, less associated costs, the entirety of the tax fails to satisfy the requirement. This all-or-nothing result is so because the regulation mandates that a tax either is or is not an income tax, in its entirety, for all persons subject to the tax. Id. § 1.901-2(a)(1)(ii) (emphasis added). If 105% of gross receipts (barely more than actual receipts) does not satisfy the requirement, then 225% is in the same boat but another ocean. In this example, as with the U.K. windfall tax, manipulating the tax rate could in theory fix the problem. Say that the tax rate on the hypothetical extraction tax is 20%. It is true that a 20% tax on 105% of receipts is mathematically equivalent to a 21% tax on 100% of receipts, the latter of which would satisfy the gross receipts requirement. PPL proposes that we make the same move here, increasing the tax rate from 23% to 51.75% so that there is no multiple of receipts in the tax base. But if the regulation allowed us to do that, the example would be a nullity. Any tax on a multiple of receipts or profits could satisfy the gross receipts requirement, because we could reduce the starting point of its tax base to 100% of gross receipts by imagining a higher tax rate. The regulation forbids that outcome. [3]