Anyone else see this yet? It's really bizarre.....! Tax-Free Speech? Julie Kay Miami Daily Business Review 12-19-2002 One of Florida's largest public companies has filed a lawsuit against the Florida Department of Revenue invoking a unique legal theory that it should be exempt from paying taxes because it is protected under the First Amendment of the U.S. Constitution. Fort Lauderdale-based Citrix Systems, a manufacturer of computer software, is seeking a refund of about $5 million in state corporate income taxes that it paid over the last five years. Citrix is relying on an unusual legal theory -- that all companies acting as purveyors of information and facilitators of communications, including newspapers, TV stations, telephone companies and computer companies, are constitutionally exempt from paying taxes of any kind. That, according to Citrix, includes both the federal and state income taxes corporations pay and the state sales tax that customers pay every time they buy a newspaper, magazine or computer. The class action lawsuit, filed last week in Broward Circuit Court, has surprised and amused tax watch groups, law professors, tax attorneys and the Department of Revenue, whose spokesman responded to questions about the lawsuit with peals of laughter. But the action, filed by a publicly traded company that posted $378.7 million in revenues for the nine months ended Sept. 30, should not be dismissed too quickly as the latest in a long line of wacky attempts to argue that the government has no constitutional right to levy taxes, experts said. It was filed by Boca Raton, Fla., tax lawyer Allen Libow, who said he has won previous lawsuits against the Department of Revenue, including one brought by a Boca Raton magazine that recently was affirmed by the 4th District Court of Appeal. "This is a very substantial corporation in Florida, with substantial assets," said Dominic Calabro, executive director of the Tallahassee, Fla.-based TaxWatch, a taxpayer group. "Obviously, they feel serious enough to file this. I'm surprised. It's a very interesting argument they're making." Bob Jarvis, a law professor at Nova Southeastern University, said he also was surprised that a large company like Citrix would file such a lawsuit. "Usually it's the crackpots," he said. Still, he predicted the lawsuit would go nowhere: "This doesn't even pass the laugh test. The government would go out of business and we would have anarchy if people didn't pay taxes." In the suit, Citrix is seeking to make all of its computer software customers plaintiffs in the potential class action. Those customers include 499 of the Fortune 500 companies. 'WHOLE THING IS WRONG' The lawsuit grows out of a dispute between Citrix and the state tax agency that began several years ago when the Department of Revenue started auditing the company. Citrix sought a $90,000 refund because it felt it was entitled to an exemption for research and development costs. The tax agency disagreed. Citrix filed a protest, and was denied. Deciding that the state was "dead wrong" in its decision, David Carls, manager of corporate taxes for Citrix, said the company started examining its entire tax liability. Carls and Libow, a partner at Libow & Muskat who is the company's outside tax lawyer, decided that Citrix should pay no state or federal taxes, neither income or sales taxes. "We decided the whole thing is wrong," Carls said. "The government is practicing discrimination in how it taxes various entities. I think this is something whose time has come." On Dec. 9, with the approval of its top executives -- but without a vote by the board of directors -- Citrix took a step that anti-tax libertarians would applaud. It sued the state tax agency, seeking a refund of some $5 million -- all the state corporate income tax it paid between 1996 and 2001, the audited period. Citrix paid Libow between $40,000 and $60,000 to file the lawsuit. The rest of the case will be on a contingency basis. The case has been assigned to Judge Robert Lance Andrews. Citrix is in the process of notifying all its vendors and customers that they are going to be part of a class action against the Department of Revenue and may opt out if they wish. 'CHILLING EFFECT' The reason purveyors of information are exempt from taxation, according to the suit, is that taxes have a chilling effect on the First Amendment right to free speech under the U.S. Constitution. "By assessing and collecting Florida income and emergency excise tax," states the lawsuit, "the DOR is restricting the freedom to circulate this information, in direct violation of established United States and Florida constitutional principles, as said tax scheme is discriminatory on its face between not only similarly situated speakers, but to the recipients of such speech, as well." Added Carls: "The framers of the Constitution did not have in mind that free speech should be taxed. If you really think about it, economic restriction is equivalent to forcible restriction. When CBS or CNN buys a camera for the studio, for every 10 cameras they buy they could have bought an 11th if they didn't have to pay taxes." Various groups over the years have tried to claim that the government has no constitutional right to levy taxes. Last year, the We the People Foundation, a tax-exempt educational charity based in Queensbury, N.Y., launched an advertising campaign to make its case that the 16th Amendment, allowing income taxes, was fraudulently adopted. The courts repeatedly have rejected such theories. Three years ago, Congress increased the penalties for making such arguments against the tax laws in court to $25,000, up from $5,000. But such challenges continue. Around the country, various individuals sell tax-evasion schemes, and leaders of militia and "patriot" organizations, as well as business owners, have stopped withholding taxes from their workers' paychecks. One prominent tax lawyer who did not want to be identified called it foolhardy for Citrix to take this legal tack. He said Citrix should have sued just to recoup its $90,000 refund, not on the larger issue. "When you deal with the DOR, you play it by the book," said the lawyer. "Somebody convinced Citrix to go along with this." He noted that a major convenience store chain sued the Department of Revenue in the early 1980s and wound up facing criminal charges for allegedly withholding taxes. While he calls the First Amendment issue "an interesting question of law that we will follow," Calabro of TaxWatch said the real test of whether a tax is constitutional is whether it is applied across the board, in a fair and even-handed manner. Since media and information companies are not charged a special tax, the Department of Revenue appears to be fair in its treatment of them, he said. The agency "reviewed the issues raised by [Citrix] and finds them not to be meritorious," said agency spokesman Dave Bruns with a laugh. "We're looking forward to our day in court." Bruns said "the constitutionality of income tax is well-settled law that has been in place for many years. There have been challenges in other states and with the federal government, but rarely by software producers. Usually they are by taxpayer protest groups." When informed that the Department of Revenue spokesman laughed about the lawsuit, Libow responded, "We'll see how funny this is when it winds up in court." He noted the case is before Judge Andrews, an unpredictable jurist who has taken on government in the past and made controversial rulings. Libow previously has sued the Department of Revenue successfully, though on much narrower grounds. He was victorious in a lawsuit he brought on behalf of Soap Opera Magazine, which is owned by Boca Raton-based American Media. The department wanted to tax photos the magazine bought from free-lancers, but did not similarly tax newspapers, such as its sister paper, the Weekly World News. Libow sued for discriminatory practices, among other grounds, and won the suit. It was affirmed by the 4th District Court of Appeal. MIAMI HERALD SAID NO Libow said Citrix's customers may opt out of the lawsuit if they wish, but are automatically included if class certification is granted. He said he likely will expand the lawsuit to name the Internal Revenue Service as a defendant -- but first wants to gain support from other tech companies in Silicon Valley. "Citrix doesn't want to be singled out," he said. "They don't want this to be seen as big business trying to save money." Libow has also been contacting newspapers and magazines around the country to solicit their participation in the lawsuit. He met with officials of the Miami Herald to discuss the matter, but the Herald ultimately decided not to join in, said Herald general manager Jesus Diaz, who declined to say why. American Media, of Delray Beach, Fla., was also contacted by Libow. But the company declined to comment on the issue. Carl said his company is not afraid of taking on the state Revenue Department. "They've got all the power in the world to audit you," he said. "I hope they're not picking and choosing who they're going to audit by these things. The bottom line is, the Department of Revenue has been less than fair to us." Will Citrix drop its lawsuit if the DOR simply capitulates and gives the company the requested $90,000 refund? "No way," said Libow, insisting that the lawsuit is not a negotiating ploy. "This is going all the way. I'm sure it will end up in the U.S. Supreme Court. This is a very, very serious matter." *********************************************** This Weeks Sponsor: 99point9.com The 99Point9.com Online Tech Support Helpdesk is the one-stop solution for all your server-based computing needs. http://www.99point9.com ************************************************ For Archives, to Unsubscribe, Subscribe or set Digest or Vacation mode use the below link. http://thethin.net/citrixlist.cfm