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Tax - Fall 2023 > Ch. 1 - Taxes & Taxing Jurisictions > Flashcards

Ch. 1 - Taxes & Taxing Jurisictions Flashcards

1
Q

Taxes are ______________ because they are widespread?

A

Pervasive

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2
Q

Taxes are __________ because tax laws change so frequently

A

dynamic

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3
Q

Define a tax

A

A tax can be defined as a payment to support the cost of government.

It differs from a fine or penalty imposed by a government because a tax is not intended to deter or punish unacceptable behavior.

A tax differs from a user’s fee because the payment of a tax doesn’t entitle the payer to a specific good or service in return.

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4
Q

Taxpayer

A

a person or organization required by law to pay a tax to a governmental authority. The term ‘person’ refers both to humans and corporations.

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5
Q

Incidence of a tax

A

Refers to the ultimate economic burden represented by the tax.

Example: a government enacts a new corporate tax on corporate business profits. So companies respond by increasing retail price. The incidence falls to the consumer.

Or property taxes are raised by the local government. Therefore, the incidence of the tax falls to the tenants when their rent is increased, not the landlord (even though they are the ones actually paying the increased taxes).

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6
Q

Jurisdiction

A

The right of a government to levy a tax on a specific person or organization.

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7
Q

Tax base

A

An item, occurrence, transaction, or activity with respect to which a tax is levied.

Ex: real property taxes are levied on the ownership of land and buildings, and the dollar value of the property is the tax base.

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8
Q

What is the formula to represent the relationship between taxes owed and the tax base?

A

Tax = rate x base

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9
Q

Flat rate

A

a single percentage that applies to the entire tax base

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10
Q

Graduated rate

A

A tax that adjusts in relation to the amount subject to taxation. This usually means that those earning the largest amount of icnome pay the largest tax percentage.

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11
Q

Tax bracket

A

The portion of a tax base subject to a given percentage rate in a graduated rate structure.

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12
Q

Revenue (in relation to taxes)

A

The total tax collected by the government and available for public use

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13
Q

A tax can be __________ or __________ based so that the tax is triggered only when an event occurs or a transaction takes place

A

Event or transaction based

For example: sales taxes are only triggered when a retail good or service is purchased. Or estate tax is only levied on the transfer of property from a descendent to the decedent’s heirs.

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14
Q

Activity based tax

A

A tax that is imposed on the cumulative result of an ongoing activity. For example, annual income taxes

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15
Q

Income tax

A

Is imposed on the periodic inflow of wealth resulting from a person’s economic activities.

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16
Q

Earmarked taxes

A

A tax that generates revenues from a designated project or program rather than for the government’s general fund.

For example: revenues from local real property taxes are typically earmarked to support public school systems. Or revenues generated by the federal payroll and self-employment taxes fund the Social Security system (Old Age, Survivors, and Disability Insurance Trust Fund) and Medicare (Hospital and Supplementary Medical Insurance Trust Funds)

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17
Q

How are local governments defined as it relates to taxes?

A

They include townships, cities, municipalities, counties and school districts, all of which have operating budgets financed by tax revenues.

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18
Q

True or false: local governments are independent from state governments.

A

False.

They are subject to the authority of state governments, and state constitutions or statues typically regulate the nature and extent of local taxation.

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19
Q

True or false: states taxing jurisdictions are subject to federal constitutional and statutory constraints.

A

True!

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20
Q

Typically, even the smallest enterprise is usually required to pay taxes to support at least ________ levels of government

A

3–local, state, and federal

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21
Q

What is another name for real property taxes and personal property taxes (hint: it’s Latin)

A

ad valorem taxes

Aka a taxed based on the value of property

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22
Q

Local governments depend heavily on what kind of taxes for their revenue? What % is it?

A

real property taxes and personal property taxes make up more than 70% of local government tax revenues

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23
Q

What is the definition of real property (aka realty)?

A

Land and whatever is erected or growing on the land or permanently affixed to it.

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24
Q

Real property taxes.

What are they based on?

A

A tax levied on the ownership of realty and based on the property’s assessed market value.

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25
Q

True or false: the tax rate for real property taxes is determined annually according to the jurisdiction’s need for revenue for that particular year

A

True!

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26
Q

True or false: local government’s use one tax rate for all classes of real or personal property

A

False.

A local government can choose to tax different types of property differently (agricultural vs residential vs commercial, etc)

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27
Q

True or false: local governments do not have the authority to grant permanent tax-exempt status to realty owned by charitable, religious, or educational organizations and publicly owned realty.

A

False–they do have this authority (and they do)

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28
Q

What is a temporary tax exemption called?

A

an abatement.

Aka a property tax exemption granted by a government for a limited period of time

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29
Q

What is personalty? What is it better known as?

A

Personalty is personal property taxes. Personal property aka personalty is any asset that is not realty, and are based on the balue of the asset subject to tax

30
Q

True or false: the value of personal property is assessed by the government

A

False–unlike real property, personal property value is typically assessed and reported by individuals or organizations who own them

31
Q

What are the general classes of taxable personalty?

A
  1. Household tangibles
  2. Business tangibles
  3. Intangibles
32
Q

What are some of the challenges with taxing personalty?

A

Personalty taxation has declined steadily as a revenue source over the past century. Reasons include:

Taxation is difficult to enforce due to:
-Personal property is easy to hide/move/conceal
-A government that attempts to actively search for personalty, particularly household tangibles, could violate individual privacy rights

Governments attempt to get around these issues by linking the payment of personal property taxes to asset registration or licensing requirements

33
Q

True or false: states rely more heavily on sales taxes than income taxes as a major source of revenue

A

False. They rely almost in equal measure on sales taxes and income taxes

34
Q

Sales taxes and income taxes (combined) make up what percentage of state revenue sources?

A

About 90% of state tax revenues

35
Q

True or false: all states impose sales taxes on the in-state sale of tangible personal property and selected services

A

False–not all, but 45 states and DC

36
Q

T/F: Only state governments impose sales taxes

A

False; 38 states allow local governments to levy sales taxes

37
Q

Define sales tax

A

A sales tax is typically based on the retail price of tangible personalty.

38
Q

What is a use tax, and what is it designed for?

A

A complementary tax to sales taxes. It is levied on the ownership, possession, or consumption of tangible goods used within a state, but they only apply if the owner of the goods didn’t pay the state’s sales tax when the good was purchased.

Use taxes act as a backstop to discourage residents from purchasing products in neighboring jurisdictions with lower sales tax rates.

For example: if Diane is a resident of Texas with 7% sales tax rate, but purchases earrings in Hawaii with 5% sales tax rate, she has to pay the remaining 2% sales tax to her home state of Texas

39
Q

Excise tax

A

A tax levied on the retail swale of specific goods or services (ex: fuel, alcohol, flights). An excise tax may be in addition to or instead of a general sales tax and can be extremely high.

Can be imposed by the state or federal government and the seller is responsible for paying.

40
Q

How is excise tax different from sales tax?

A

Excise taxes:
1. affect few goods and services than sales taxes do
2. Less broad (only apply to specific goods and services)
3. Typically calculated per unit
4. Is an indirect tax (for example, was levied on manufacturer. You won’t find it on your receipt but the price will be higher. Aka incidence)
5. Can be much higher than sales tax

41
Q

Personal and corporate income taxes are levied by which government level?

A

State governments (43, to be exact for personal income taxes and 44 for corporate income taxes)

42
Q

The federal government relies almost entirely on what types of taxes for revenue?

A

The federal government relies almost entirely on income taxes as their source of general revenues

43
Q

Federal income tax applies to what types of entities/people?

A

-Individuals
-Corporations
-Trusts
-Estates

44
Q

What does Social security do, and which government sponsors it?

A

The social security system provides monthly old-age, survivors, and disability benefits to qualifying citizens and residents.

Sponsored by the federal government

45
Q

What does Medicare do, and which level of government sponsors it?

A

Provides hospital insurance for people who are elderly or disabled.

46
Q

What tax(es) fund Social Security and Medicare?

A

NOT the general revenues generated by the income tax

Instead, they are funded by employment taxes

47
Q

What are employment taxes? And what are they based on?

A

They are earmarked taxes levied by the federal government meant to fund Social Security and Medicare.

They are based on annual wages and salaries paid by employers to their employees and on the net income earned by self employed individuals.

48
Q

What are unemployment taxes? What are they based on? Which level of government are they levied by?

A

Unemployment taxes are levied by both the federal and state governments on compensation paid by employers to their employees.

Unemployment taxes are earmarked to fund the national unemployment insurance program,

49
Q

Transfer taxes

A

A tax levied on the transfer of wealth by gift or at death and based on the market value of the transferred assets

50
Q

What are all the different federal taxes?

A

-Individual and fiduciary income taxes
-employment and unemployment taxes
-corporate income taxes
-excise taxes
-transfer taxes

51
Q

What does VAT stand for?

A

valued added tax

52
Q

What is value-added tax?

A

Value-added taxes are levied on firms engaged in any phase of the production of good and are based on the incredmental value that the firm adds to the good.

Aka, my own interpretation is that they are taxes on each stage of production and/or the markup process.

53
Q

Taxes are dynamic in nature, and there in a constant state of _______?

A

They are in a constant state of flux

54
Q

Online retailers collect sales tax on what?

A

Based on the residence of the purchaser

55
Q

What is the definition of tax law, and what is it made up of?

A

Tax law is the body of legal authority consisting of statutory laws, administrative pronouncements, and judicial decisions.

56
Q

What are the sources of authority for tax law? Describe them in detail

A
  1. Statutory Authority
    In its narrowest sense, statutory law is the Internal Revenue Code of 1986 – the compilation of statutory rules enacted by Congress
  2. Administrative Authority
    The Department of the Treasury is responsible for writing regulations to interpret and illustrate the rules contained in the Internal Revenue Code. These are called Treasury Regulations. But they are not laws themselves

The IRS also provides guidance called revenue rulings and revenue procedures. A revenue ruling explains how the IRS applies the tax law to a particular set of facts. A revenue procedure advises taxpayers how to comply with IRS procedural or administrative matters.

  1. Judicial Authority
    Taxpayers who disagree with the IRS interpretation of the law as it applies to their own situations may take their cases to federal court.

In order of least to most authority:

57
Q

Which part of the government enacted the Internal Revenue Code of 1986?

A

Congress

58
Q

What is the Internal Revenue Code of 1986? What does it do

A

It is the compilation of statutory tax laws written and enacted by Congress.

Aka ‘the law of the land’ when it comes to federal taxes in the US

59
Q

What is the path that tax legislation follows in the US government?

A
  1. It begins in the House of Representatives. First, an original version of new tax bill is drafted by the House Ways and Means Committee, then considered by the full House.
  2. If the House votes to approve bill, it moves to the Senate Finance Committee. That committee can make edits, revisions, additions, or deletions to the House bill before presenting it to the full Senate for approval
  3. If the bill has been significantly changed by the Senate Finance Committee from the original version approved by the House, both versions are considered by a Conference Committee which is made up of both the House and Senate Committees combined
  4. If both the House and Senate vote to approve the Conference Committee’s final version, the bill is submitted to the president for signature or veto
  5. If the president sign the bill, it is redesignated as a tax act and becomes law
60
Q

What is the House Ways and Means Committee?

A

The committee of the U.S. House of Representatives responsible for originating and drafting tax legislation

61
Q

What is the Senate Finance Committee?

A

The committee of the U.S. Senate responsible for drafting tax legislation.

62
Q

What is the Conference Committee?

A

A committee composed of House and Senate members formed for the purpose of reconciling differences in the House and Senate version of new tax legislation.

63
Q

What is a section as it relates to the Internal Revenue Code?

A

Numerically labeled subdivision of the Internal Revenue Code. Each section contains an operational, definitional, or procedural rule relating to one of the federal taxes.

64
Q

Treasury Regulations

A

The official interpretation of a statutory tax rule written and published by the U.S. Treasury Department.

65
Q

Internal Revenue Service (IRS)

A

The subdivision of the U.S. Treasury Department responsible for the enforcement of the federal tax laws and collections of federal taxes.

66
Q

Revenue Ruling

A

an IRS pronouncement explaining how the IRS applies the tax law to a particular set of facts.

67
Q

Revenue Procedure

A

An IRS pronouncement advising taxpayers how to comply with IRS procedural and administrative matters.

68
Q

Internal Revenue Bulletin (I.R.B.)

A

The IRS’s weekly publication containing revenue rulings and procedures.

69
Q

Cumulative Bulletins (C.B.s)

A

Semiannual compilation of weekly Internal Revenue Bulletins

70
Q
A

Tax - Fall 2023 (7 decks)

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