Document Type


Publication Date


Publication Title

State Tax Notes

Publication Title (Abbreviation)

St. Tax Notes



First Page


Last Page



One of the hardiest perennials in the garden of state and local tax issues is the question whether particular revenue measures should be classified as taxes or some other type of exaction. The issue has been dispositive in numerous state and local tax cases and, befitting that significance, has been the topic of many reports in this journal.

Given the frequency of the decisions and commentary, authorities cited on the issue constantly evolve. State courts, omnivorous in their search for precedents and rationales, often cite federal cases. Recognizing this, a recent article in State Tax Notes examined decisions of the U.S. Supreme Court as to distinctions between taxes and user fees.

This installment and the next installment of this column are in a similar vein. They explore a potentially new source of guidance developing in the federal courts regarding the question “what is a tax?” The new source of guidance involves the Patient Protection and Affordable Care Act of 2010 (ACA), so-called Obamacare. The individual mandate portion of the ACA requires that every applicable individual (with stated exceptions) obtain a minimum of medical insurance. Any “taxpayer” who doesn't obtain that coverage must make a “shared responsibility payment” to the federal government.

The payment amount is computed by using the smaller of a percent of the individual’s income or the national average premium for the lowest-level insurance plan providing minimum essential coverage. The shared responsibility payment is labeled a “penalty,” not a tax, but it is lodged within the Internal Revenue Code.

The constitutionality of the individual mandate has been addressed in numerous federal lower court decisions, and the cases are in conflict. The U.S. Supreme Court will consider the matter this term. Whether the shared responsibility payment constitutes a tax or something else is central to the litigation. The answers the federal courts give to this question could influence future state and local tax cases. Indeed, similar questions have been asked as to financing mechanisms for state medical care proposals.

This installment of the column and the next installment consider this new source of guidance regarding the “what is a tax?” question. This installment sets the stage by rehearsing the contexts in which the issue has arisen in state and local tax controversies, the practical stakes involved in those controversies, and the criteria courts have developed to distinguish between taxes and other types of governmental exactions. The following installment of the column will build on this foundation by exploring what the already decided ACA cases have said, and what the Supreme Court might say, about “what is a tax?” in the context of the ACA shared responsibility payment.


© 2012 Steve R. Johnson


First published in State Tax Notes.

Faculty Biography