Chapter 1 - Taxes and Taxing Jurisdictions Flashcards
Why are taxes pervasive? 4
- They are so widespread
- Come in many varieties
- Affect virtually every aspect of modern life.
- Come from a multiplicity of jurisdictions in which people conduct business.
Why are taxes dynamic?
The tax laws change so frequently.
What is a tax?
A payment to support the cost of government.
How does a tax differ from a penalty?
- The tax is not intended to deter or punish unacceptable behavior
- Taxes are compulsory
- Unlike a fee, the payment of a tax does not entitle the payer to a specific good or service in return.
Who is a taxpayer?
Any person or organization required by law to pay a tax to a governmental authority.
Under the US tax law, how is a Person defined?
Refers to natural persons and corporations.
What does the Incidence of a tax refer to?
The ultimate economic burden represented by the tax.
Define Jurisdiction.
The right of a government to levy tax on a specific person or organization.
Why does jurisdiction exist?
There is some rational linkage between the government and the taxpayer.
Who does the federal government claim jurisdiction over?
- Any individual who is a US citizen or permanently resides in this country.
- People that are neither citizens nor residents but who earn income from a source within the United States.
What is a tax base?
An item, occurrence, transaction, or activity with respect to which a tax is levied.
What is the tax base for the income tax? Property tax?
- The amount of income a person makes
- The value of the property the tax is levied on.
What is the formula that calculated the dollar amount a tax earns?
Tax (T) = Rate (r) x Base (B)
What is a flat rate?
A single percentage that applies to the entire tax base.
What is a graduated rate?
A structure consisting of multiple percentages that apply to specific portions of the tax base.
What is a tax bracket?
A portion of the tax base.
What is revenue?
Refers to the total tax collected by the government and available for public use.
What does it mean when a tax is an event or transaction based?
The tax is triggered only when an event occurs or a transaction takes place. (Sales tax or estate tax)
What does it mean when a tax is activity based? What is required? 3
-It is imposed on the cumulative result of an ongoing activity.
(Income tax)
- Taxpayers must maintain records of the activity
- Summarize the result at periodic intervals
- Pay tax accordingly.
What is a income tax?
A tax imposed on the period inflow of wealth resulting from a person’s economic activities.
What does it mean when a tax is earmarked?
The tax revenue is designed to finance designated projects.
What are Ad Valorem Taxes?
Another name for real property taxes and personal property taxes.
What two taxes account for more than 70% of local government’s tax revenues?
Real Property Tax
Personal Property Tax
What is Realty (Real Property)?
Land and whatever is erected or growing on the land or permanently affixed to it.
This includes any subsurface features such as mineral deposits.
What are Real Property Taxes?
Taxes that are levied annually and are based on the market value of the property as determined by the local government.
What is a tax assessor?
Elected or appointed officials that are responsible for deriving the value or realty and informing owners of the assessed value.
What can property owners do who disagree with the assessed value of their property?
Challenge the assessment in an administrative or judicial proceeding.
What is a unique feature of property taxes?
The tax rate is determined annually based on the jurisdiction’s need for revenue for that particular budget year.
How is a property tax calculated?
The city’s required amount of taxes to be raised divided by the total value of real property located within the city limits.
Ex. If they need 12 million and the real property is values at 230 million, 12 million /230 million equals 5.22% tax rate.
What is an abatement?
A temporary tax exemption.
Why do governments grant abatements?
To lure commercial enterprises into their jurisdiction, thereby creating jobs for the local economy.