§ 141. Tax on gross revenues; Exemption.
§ 142. Source of gross revenue; Apportionment.
§ 143. Returns and payment of tax on taxable gross revenue.
§ 144. Liability for payment of tax; Penalties.
(1) There shall be assessed, levied, collected, and paid a tax of $80 per year upon that portion of the amount of taxable gross revenues earned by every business subject to the provisions of this chapter which does not exceed $10,000 per year.
(2) There shall be assessed, levied, collected, and paid a tax of three percent per year upon that portion of the amount of taxable gross revenues earned by every business subject to the provisions of this chapter which is in excess of $10,000 per year.
(3) Businesses which earn gross revenues of not more than $2,000 per year are exempt from taxation under this section. The deduction shall be claimed by the business by filing for a refund under the provisions of sections 122 and 123 of this chapter.
(4) For the purpose of section 805 of this title, every business that operates in more than one State of the Federated States of Micronesia shall file a separate tax return for revenue collected in each State.
Source: COM PL 4C-2 § 8; COM PL 4C-94 § 1; COM PL 5-26 § 5; COM PL 7-67 § 2; TT Code 1980, 77 TTC 258; PL IC-26 § 5; amended by PL 5-84 § 2; PL 14-90 § 2.
Cross-reference: The statutory provisions on Business Regulation are found in title 32 of this code. The statutory provisions on Corporations and Business Associations are found in title 36 of this code.
Case annotations: The tax on gross revenues falls squarely within the constitutional authorization given to Congress by art. IX, § 2(e) to tax income. Ponape Fed’n of Coop. Ass’ns v. FSM, 2 FSM R. 124, 126 (Pon. 1985).
The penalty provisions of 54 F.S.M.C. 902 apply to failure to make timely payment of the gross revenue tax imposed under 54 F.S.M.C. 141. FSM v. George, 2 FSM R. 88, 94 (Kos. 1985).
That Congress may tax “gross income” is plainly and unmistakably provided for in the words of art. IX, § 2(e) of the Constitution. Ponape Fed’n of Coop. Ass’ns v. FSM, 2 FSM R. 124, 127 (Pon. 1985).
The power granted to Congress by FSM Constitution art. IX, § 2(e) “to impose taxes on income” includes the power to tax gross revenue. Afituk v. FSM, 2 FSM R. 260, 264 (Truk 1986).
The gross revenue tax as enacted by the Congress of Micronesia continued in effect in the FSM by virtue of the transition article of the FSM Constitution but, because it was subsequently amended by the FSM Congress and was included in the codification of FSM Statutes, may now be considered a law enacted by Congress. Afituk v. FSM, 2 FSM R. 260, 264 (Truk 1986).
Taxation of gross revenue of business at different amounts and rates, depending upon the amount of each business’s annual gross revenue is rationally related to the legitimate legislative purposes of requiring businesses who receive less to pay lower tax and of administrative simplicity, and therefore does not violate the due process or equal protection provisions of the FSM Constitution. Afituk v. FSM, 2 FSM R. 260, 264 (Truk 1986).
There appears to be uniform acceptance by common law jurisdictions of the principle that government officials are considered employees for income tax purposes. This amounts to common law rule of taxation and yields a result in harmony with the underlying principles of the taxation system established by the FSM Income Tax Law. Rauzi v. FSM, 2 FSM R. 8, 12 (Pon. 1985).
In the FSM Income Tax Law, 54 F.S.M.C. 111 et seq., cooperatives are not singled out in any way within the definition of business and there is no indication in the tax law that cooperatives are to be treated differently than corporations or any other forms of businesses. Kolonia Consumers Coop. Ass’n v. Tuuth, 5 FSM R. 68, 70 (Pon. 1991).
(1) If any business earns or derives its gross revenue from business activities or undertakings both within and without the Federated States of Micronesia during the taxable year, then the whole of its gross revenue shall be presumed to have been derived from sources within the Federated States of Micronesia.
(2) The business may file for an apportionment of the tax on a form prescribed by the Secretary and the tax shall be levied only on that portion which is earned in or derived from sources or transactions or parts of transactions within the Federated States of Micronesia.
Editor’s note: The 1980 edition of the Trust Territory Code erroneously substituted COM PL 7-32 § 6 (part) for this provision.
Cross-reference: The statutory provisions on Business Regulation are found in title 32 of this code. The statutory provisions on Corporations and Business Associations are found in title 36 of this code.
Case annotations: The gross revenue tax levied by the national government under 54 F.S.M.C. §§ 141-44 is distinguishable from a sales tax in several ways. Ponape Fed’n of Coop. Ass’ns v. FSM, 2 FSM R. 124, 127 (Pon. 1985).
While there is a presumption that all revenue of a business is derived from sources within the FSM, the presumption may be rebutted and the tax “levied only on that portion which is earned or derived from sources or transactions within the Federated States of Micronesia.” 54 F.S.M.C. 142. Bank of the FSM v. FSM, 5 FSM R. 346, 349 (Pon. 1992).
The statutory scheme emphasizes the location of the business activity which generates the revenue in question. Therefore revenue derived from banking investment transactions in Honolulu and Chicago are not taxable since they are not derived from sources or transactions within the FSM. Bank of the FSM v. FSM, 5 FSM R. 346, 349 (Pon. 1992).
(1) Every business, on or before the last day of the month following the close of each quarter, to wit: on or before April 30, July 31, October 31, January 31, shall pay, based on its taxable gross revenue of the preceding quarter, the amount of tax imposed by this chapter to the National revenue officer in the State in which the business has its principal place of business in the Federated States of Micronesia, or to the Secretary.
(2) Each business shall, on or before the date provided for payment of tax under this section, make a full, true, and correct return showing all gross revenue received, accrued, or earned by the business, the taxable gross revenues of the business, the expenses for wages and salaries and social security contributions claimed by the business in calculating its taxable gross revenue and the amounts deducted and set aside on account of the taxable gross revenues during the preceding quarter.
(3) The return shall be filed at the place in this section prescribed for payment of the tax and shall include such other information as shall be required or prescribed by the Secretary. The Secretary, for good cause, may extend the time for making payments and returns, but not beyond the last day of the first month succeeding the regular due date thereof.
Editor’s note: The 1980 edition of the Trust Territory Code erroneously substituted COM PL 7-32 § 5(1) for this provision.
Cross-reference: The statutory provisions on Business Regulation are found in title 32 of this code. The statutory provisions on Corporations and Business Associations are found in title 36 of this code.
Case annotations: Statute mandates that all businesses compute gross revenue tax liability using the accrual accounting method. 54 F.S.M.C. 143(2). NIH Corp. v. FSM, 5 FSM R. 411, 413 (Pon. 1992).
Where the government’s prior audit methods had the effect of permitting gross revenue tax computation on the cash basis and where the government’s attempts to advise businesses that they are required to use the accrual method have for many years been woefully inadequate, the government will be barred by equitable estoppel from assessing penalties and interest on any underpayment of taxes that was the result of being led to believe that the cash basis was an acceptable method of tax computation. NIH Corp. v. FSM, 5 FSM R. 411, 415 (Pon. 1992).
Editor’s note: The 1980 edition of the Trust Territory Code erroneously substituted COM PL 7-32 § 5(2), (3) for this provision.
Cross-reference: The statutory provisions on Business Regulation are found in title 32 of this code. The statutory provisions on Corporations and Business Associations are found in title 36 of this code.
Case annotations: The statement in 54 F.S.M.C. 144(2) that penalties provided in chapter 1 will apply to the gross revenue tax law does not preclude the penalty specified in 54 F.S.M.C. 902 from applying. FSM v. George, 2 FSM R. 88, 91 (Kos. 1985).