Section 4- Part 3-5

Question 1

Tax Types (Wealth Tax)

Answer 1

Real Property
Personal Property
Intangibles
Estate and Inheritance

Question 2

Wealth Tax

Answer 2

Category of taxation that includes real property, personal property, intangibles, estate and inheritance taxes.

Question 3

Real Property Tax

Answer 3

The greatest challenge in a real property taxation system is appraisal and subsequent assessment of property values. The process is technically challenging, as well as politically sensitive. An original appraisal and periodic re-appraisals are required to determine the market value of the property. Then, a tax assessor determines the assessed value of the property, which is a percentage of the market value

Question 4

Real Property Tax- Local and State Government

Answer 4

In general, the local government determines the property value and then applies a percentage of the market value to determine the assessed value. Real property may be assessed anywhere from 10 percent to 100 percent of market value. Across states and communities, assessment ratios vary. For instance, in Davidson County, Tennessee, residential and farm property is assessed at 25 percent of market value, while commercial and industrial property is assessed at 40 percent.3 An equalization factor (multiplier) may be applied to equalize assessments across a district, county or state.

Question 5

Personal Property Tax

Answer 5

Form of wealth tax. Personal property differs from real property in that it is not attached to the ground and can be transferred from one location to another.

Question 6

PPT- Businesses

Answer 6

Businesses pay personal property tax on such items as furniture, tools and farm equipment. Some business property may be exempt from property taxes—small tools used by plumbers, carpenters and auto mechanics are often exempt. A key point is that many items are exempt from personal property tax paid by individuals, but the same items are taxed when owned by a business.

Question 7

PPT Notes

Answer 7

Personal property taxation can be difficult and expensive to administer. The process often involves the taxpayers (especially businesses) listing their personal property, the date of purchase and purchase price, and submitting this information to the tax assessor.

Question 8

Intangible Taxes

Answer 8

Form of wealth tax. Applied to intangible assets such as stocks and bonds, savings accounts, trademarks, and accounts receivable (in the case of a business).

Question 9

Estate and Inheritance Taxes

Answer 9

Estate taxes and inheritance taxes are also a tax on wealth. These “death taxes” are one of the oldest forms of taxation. While the terms are often used interchangeably, they are not the same. Inheritance taxes are levied on the person receiving the bequeathal, while estate taxes are levied on the estate of the deceased person before assets are distributed to heirs.

Question 10

Note:

Answer 10

View examples on pg 120

Question 11

Tax Types: Consumption Tax

Answer 11

Sales Tax
Use Tax
Excise Tax
Value Added Tax

Question 12

Consumption Tax

Answer 12

Broad category of tax that includes sales, use, excise and value-added taxes.

Question 13

Sales Tax

Answer 13

The most common consumption tax is a sales tax. The tax base for sales tax is usually all goods, and possibly all goods and services. Historically, many entities imposed a sales tax on goods but exempted services (such as haircuts or carpet cleaning).

Question 14

Sales Tax (Different levels of government)

Answer 14

Sales taxes may be imposed by governments at any level, though a local government cannot impose a sales tax unless authorized to do so by the respective state. Presently, there is no national sales (consumption) tax, although there are national excise taxes, which some people consider comparable to a sales tax.

Question 15

Use Tax

Answer 15

Tax charged on goods purchased from out-of-state and used within the state. Tax is levied for the right to use the item in the state. One form of consumption tax.

Question 16

Use Tax- Disadvantage

Answer 16

An obvious disadvantage of use taxes is reliance on voluntary compliance, especially for individual taxpayers. Since business purchases are usually larger, governments have more success in tracking out-of-state business purchases and collecting the applicable use tax

Question 17

Excise Tax

Answer 17

An excise tax is applied to the consumption of a particular type of good, or to participation in a certain type of activity. Excise taxes are usually paid when purchases are made and may even be included in the price of the product, such as excise taxes on gasoline. Whereas general sales taxes are broad-based, excise taxes are more narrowly targeted.

Question 18

Excise Tax (Advantage)

Answer 18

One advantage of excise taxes is that they link taxation to specific services. Gasoline excise taxes are often deposited in special accounts used only to fund highway construction or maintenance. The same principle applies to excise taxes on building permits, which may be deposited in a special fund to pay for building inspections. Excise taxes can also be used to discourage certain behavior, such as smoking and consumption of alcohol.

Question 19

Value Added Tax (VAT)

Answer 19

An indirect tax on consumption that resembles a sales tax, but is paid at each stage in the development, manufacturing or distribution process by the person or organization adding value to the product.

The VAT is an indirect tax on consumption and resembles a sales tax. Rather than being paid by the retail consumer, a VAT is paid at each stage in the development, manufacturing or distribution process, from raw materials to final consumption. The tax on processors or merchants is levied on the amount by which they increase the value of items they purchase and resell.

Question 20

Intergovernmental Revenues

Answer 20

Contracts
Grants and Shared Revenue
Grantor Expectations
Grantee Expectations

Question 21

Contracts

Answer 21

Contracts are the first form of intergovernmental financing. As in the private sector, intergovernmental contracts are voluntary arrangements entered into for the mutual benefit of both entities. Contracts between local governments, or between state and local governments, often define joint use of buildings, equipment or facilities.

Question 22

Project Grants/Discretionary Grants

Answer 22

A type of grant that provides funding for specific purposes for limited periods of time. In contrast to formula grants, project grants are competitive and receipt of funding is less assured. Project grants are sometimes referred to as “discretionary grants.”

Question 23

Categorical Grant/Block Grant

Answer 23

One type of formula grant. Block grants combine several service categories into one grant and, thus, allow maximum flexibility to the grantee to use the funds to meet local needs.
(Also see “Categorical grant.”)

One type of formula grant that can be used only for a narrowly defined purpose. (Also see “Block grant.”)

Question 24

Project Grant vs Formula Grant

Answer 24

Project Grant: often involve several levels of government. The federal government awards many different kinds of project grants.

Formula Grant- a formula contained in law or regulation determines the recipients and amounts of awards. Of course, the funds must be appropriated and laws can change, but formula grants are more stable and predictable than project grants.

Question 25

Shared Revenues

Answer 25

Usually associated with revenue sharing between the state and local governments. In most instances, shared revenue funds are provided with few constraints so that local entities can use the funds as needed.

Question 26

Grantor Expectations

Answer 26

For any type of grant or shared revenue, certain basic expectations are held by the grantor (entity that provides the grant). The first of these is accountability. The grantor expects proper control and management of transactions, and full accountability for the funds provided.

“Accountability” typically means the grantor expects the following:
* the types of services provided comply with the terms of the grant (in the case of block grants, the terms will be broad);
* the end recipients are eligible for the services provided;
* the difference between allowable and unallowable program costs is recognized and upheld; and
* any requirements for matching funds or matching level-of-effort are met.

Increasingly, grantors are expecting the grantees to report outputs and outcomes of grant programs in measurable terms. When a multi-period grant is awarded, the grantor expects the funds to be encumbered and spent according to the schedule in the award agreement.

Question 27

Recipient Expectations

Answer 27

Grant recipients have their own set of expectations. They want grant programs that complement their other programs. Recipients do not want to be compelled (as the only way to obtain funds) to provide services they would not otherwise provide.

Recipients also need a reasonable amount of certainty.

Reasonable certainty also applies to timing of awards. Grants should be awarded far enough in advance so that recipients have time for proper planning and execution. The recipient also expects prompt receipt of funds once criteria have been met.

Finally, the recipient expects an unobtrusive relationship with the grantor. Accountability and reporting requirements are designed to protect the grantor’s interests. So long as these requirements are upheld, the grantor should not insist on micro-managing the program.