An odd part of the tax code and how Alaska and Texas were states before they were states

Before Alaska and Texas were States in the Union, they were considered states in the area under the exclusive jurisdiction of the federal government. That the word ‘state’ can mean two different things shows how the federal tax code can be confusing. When people read the word ‘state’, they think of the 50 states in the union, whereas it could just mean ‘states’ as defined in the code.

The book The Federal Zone (212 pages, PDF) shows the history of what I always thought was one of the oddest portions of the tax code. This is the sentence that defines the term ‘state’.

Shown below is the current version of the definition of ‘state’, but first I show the prior term, ‘United States’:

(9) United States

The term “United States” when used in a geographical sense includes only the States and the District of Columbia.

(10) State:

The term “State” shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.

From: 26 U.S. Code § 7701. Definitions

Combining (9) and (10) together leads me to think that the term “United States” includes only the States, meaning District of Columbia, and District of Columbia, which is a bit redundant.

Some say that point (10) is ‘expansive’ and also includes the 50 states of the Union. However, the history of the amendments to point (10) shows that it really only means territories of under the jurisdiction of the federal government.

Point (10) formerly referenced Alaska and Hawaii before they were admitted to the union. Once they were admitted to the union as sovereign states, they were struck from point (10) because they were no longer ‘states’ under the jurisdiction of the federal government.

The current version of point (10) sounds odd because it was amended twice. They did not take the time to revise point (9) and strike out (10) completely.

The overall significance relates to which areas the income tax applies.

Here’s the explanation of point (10) from the book The Federal Zone:

One of the most fruitful and conclusive methods for establishing the meaning of the term “State” in the IRC [Internal Revenue Code] is to trace the history of changes to the United States Codes which occurred when Alaska and Hawaii were admitted to the Union. Because other authors have already done an exhaustive job on this history, there is no point in re-inventing their wheels here.

It is instructive to illustrate these Code changes as they occurred in the IRC definition of “State” found at the start of this chapter. The first Code amendment became effective on January 3, 1959, when Alaska was admitted to the Union:

Amended 1954 Code Sec. 7701(a)(10) by striking out “Territories”, and
by substituting “Territory of Hawaii”.
[IRC 7701(a)(10)]

The second Code amendment became effective on August 21, 1959, when Hawaii
was admitted to the Union:

Amended 1954 Code Sec. 7701(a)(10) by striking out “the Territory of
Hawaii and” immediately after the word “include”.
[IRC 7701(a)(10)]

Applying these code changes in reverse order, we can reconstruct the IRC definitions of “State” by using any word processor and simple “textual substitution” as follows:

Time 1:    Alaska is a U.S.** Territory
Hawaii is a U.S.** Territory

7701(a)(10):    The term “State” shall be construed to include the Territories and the District of Columbia, where such construction is necessary to carry out provisions of this title.

Alaska joins the Union. Strike out “Territories” and substitute “Territory of Hawaii”:

Time 2:   Alaska is a State of the Union
Hawaii is a U.S.** Territory

7701(a)(10): The term “State” shall be construed to include the Territory of Hawaii and the District of Columbia, where such construction is necessary to carry out provisions of
this title.

Hawaii joins the Union. Strike out “the Territory of Hawaii and” immediately
after the word “include”:

Time 3:   Alaska is a State of the Union
Hawaii is a State of the Union

7701(a)(10): The term “State” shall be construed to include the District
of Columbia, where such construction is necessary to carry
out provisions of this title.

Author Lori Jacques has therefore concluded that the term “State” now includes only the District of Columbia, because the former Territories of Alaska and Hawaii have been admitted to the Union, Puerto Rico has been granted the status of a Commonwealth, and the Philippine Islands have been
granted their independence (see United States Citizen versus National of the United States, page 9, paragraph 5).

Download The Federal Zone.

Related Points

  • A word becomes a term when it is given a definition. It’s the part of a contract with the ‘Terms & Conditions’.
  • The word ‘includes’ is restrictive, like a fence. When I open a furniture box, the directions list what is included, and I don’t expect to find anything else. In statutes, anything not mentioned could only be something in the same class, meaning highly similar.
  • 26 U.S. Code § 7701. Definitions
  • The informer writes about State, United States, Includes

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