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Tax Strike Tactics

Counsel People in Legal Tax Avoidance Techniques

If you resist taxes because you want to reduce the financial resources available to the government, it may not matter to you whether you do this through illegal civil disobedience or through legal tax reduction strategies. For this reason, some tax resistance campaigns have taught pragmatic tax strategies that would not be out of place in run-of-the-mill financial planning workshops.

Example Ontario Sales Tax Strike

During a sales tax strike in Ontario in 1981, the accounting firm Deloitte Haskins and Sells Canada (an ancestor of today’s enormous Deloitte professional services firm) published a booklet that described several ways that people could legally avoid the sales tax. These included “such tips as buying large children’s clothing for small-sized adults or buying baby skin care products as substitutes for adult versions” (products intended for children evidently being exempt from the tax).

Example War Tax Resisters

In 1973 a group of war tax resisters in Boston, Massachusetts, opened a tax consulting service called “Common Sense” that “drew on the expertise of trained tax accountants to provide two services: counseling for tax resisters and aid to anyone in preparing tax forms… Clients often were poor or working-class people. Many were helped to avoid tax overpayments, and a large degree of friendly communication was established.”

Example Volunteer Income Tax Assistance

Today in the United States, about 40% of households pay no federal income tax, legally, because their incomes are sufficiently low or their deductions and credits are sufficiently high. Some tax resisters there successfully resist the income tax by deliberately joining this 40%—they learn how to take advantage of deductions and credits so that they can earn enough to support themselves without earning so much that the government wants its cut.

An Internal Revenue Service-sponsored program called “Volunteer Income Tax Assistance” enlists and trains volunteers to help people—typically people with low incomes—to fill out their income tax returns. The great majority of returns filed through this program result in refunds rather than additional payments (at a ratio of about 15:1), so Americans who volunteer for this program can take money from the government and give it back to tax filers, entirely by-the-book.

Example French Farmers

French farmers in the 17th and 18th centuries used every legal trick they could discover (and several less-legal ones besides) to reduce or eliminate the tithes due on their crops. Some of their tricks included:

  • growing new varieties of crops that were not mentioned in the tithe laws
  • planting “gardens” or “orchards” or “meadows” that were legally tax-exempt although they were functionally equivalent to the taxed fields
  • taking advantage of the way tax assessors rounded-off their figures so as to maximize how much of their crops would be mathematically exempted
  • planting a small amount of a taxable crop in a field that was dominated by a non-taxable crop and then claiming the whole field as non-taxable

These legal (or sometimes questionably legal) strategies were very effective at lowering tax revenue well below what the government hoped for. “Loopholes are discovered and exploited, efforts are made to stem the loss of revenue, new evasions are devised, and so on—a cat-and-mouse game in which, most observers agree, the mouse generally outwitted the cat.”

Example Crickhowell

A BBC Television show partnered with the town of Crickhowell in Wales to film an exposé about the tax haven offshoring strategies that big multinational corporations use to avoid paying taxes. Small businesses there learned how they could use similar methods, and then they implemented them to avoid their taxes. “Until now, these complicated offshore tricks have only been open to big companies who can afford the lawyers’ fees,” said one business owner. “But we’ve put our heads together, and worked out a way to mimic them. It’s jolly clever.” They vowed to teach other towns how to join them in their protest to pressure the government to close tax loopholes.

Example Troika Fiscal Disobedience Consultancy

Europe has a value-added tax, which is added to the price of goods as they increase in value during their manufacturing stages. Intermediate goods that are sold to other sellers (for instance, goods purchased by merchants for resale) do not have more tax added to them.

If you buy something for resale, rather than paying the tax at the time you buy it, you indicate to the seller that you’ll be adding the tax to the price of the goods at the time you resell it, and that way whoever sells the goods to you does so tax-free. An exchange of invoices allows the tax agencies, in theory, to follow the supply chain to whomever is responsible for collecting and remitting the tax.

But this process is frequently gamed. For instance, if the final seller is a sort of Potemkin business that vanishes before taxes are due, then the taxes never have to get paid. Or also, apparently, if that seller is officially domiciled outside the European Union—say, in the Cayman Islands or something.

A group calling itself the Troika Fiscal Disobedience Consultancy decided to help the little guy game this system too. They provided invoices that claim the Consultancy is responsible for paying any value-added tax that ordinarily would be paid by a resisting small business. The invoice charges the business for the cost of the goods, but the Consultancy doesn’t bother to collect most of the money. So the business is off the hook for the tax, the Consultancy doesn’t generate any income that might make it liable, and everyone walks away a little happier.

Example Parking Ticket Appeals

Joshua Browder, a teenaged computer programmer attending Stanford University, developed a free, on-line tool that guides people through the process of fighting their parking tickets. In its first few months of operation, it successfully appealed $3 million worth of tickets.

Example Overpaying Taxes for the Win

Opportunities for legal tax avoidance (or even better, tax reversal) may be unusual and counterintuitive. For a while, in Sweden, some people were deliberately overpaying their federal taxes. Why? Interest rates had fallen below 0%, but the government was pledged to pay 0.56% interest on tax overpayments. So if you overpay the government, the government ends up poorer and you end up richer.

Notes and Citations