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Principles of Taxation

Introduction and Chapter 1 Types of Taxes and the

Jurisdictions that Use Them

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Introduction to Students Taxes as Business Costs - Maximize

after-tax values - why is this different from tax minimization?

Taxes as Household Expenditures - tax bite is 3 / 8 hours.

Objectives: tax policy: helps understand law,

become better informed voter link finance and taxation - NPV of

after-tax cash flows - tax deferral framework of taxation is stable

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Taxing America Basic Terminology Tax Base, Rate, and Revenue

Relationship Classifying and Describing taxes Tax Policy Sources of Law

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Taxing America Basic Terminology• Tax =

(How is this different from a fee or a penalty/fine?)

• Taxpayer =

• Incidence refers to the ultimate economic burden of the tax. Not always the person who pays the tax. see Q4, Q6.

• Jurisdiction = See IR5, 9

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Taxing America Tax Base X Tax Rate = Tax Revenue

Tax Base:

Tax Rate:

Tax Revenue:

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Transaction or Activity-Based Taxes

What are examples of transaction (event) based taxes?

What is an example of an activity based tax?

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Taxing America Taxes Imposed by Jurisdiction

LocalProperty, Earnings, and Sales Taxes

StateSales and Income Taxes

FederalIncome TaxesEmployment TaxesExcise TaxesTransfer Taxes

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Taxing America

Local TaxesReal property and Personal Property Taxes

Why are these called “ad valorem” taxes?

See Q7, IR2.Earnings Taxes

Sometimes imposed on individuals who work in one city but live elsewhere. Many big cities impose.

Sales TaxUsually piggy-backed with state sales tax and

remitted to local authority.

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Taxing America State Taxes

Sales and Use TaxHow is the use tax related to the sales tax?

What kinds of property is the use tax easily enforced against?

Excise TaxWhat are common goods subject to an excise tax?See Q13What states do you think have low excise taxes on

beer?

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Taxing America State Taxes

Personal Income Tax_________________ states and the District of

Columbia impose a personal income tax. Tax rates vary considerably from state to state. See IR7

Corporate Income Tax_________________ states and the District of

Columbia tax corporations on their net income. Most refer to federal taxable income as the starting point for determining corporate taxable income for state purposes. See Chapter 12 for how to apportion income among states.

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Taxing America Federal Taxes

Income TaxIn your own notes, briefly describe the history of the US income tax.

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Taxing America Federal Taxes

Employment TaxesThe two largest programs sponsored by

the federal government are the ___________________ and ________________. . These programs are funded by taxes earmarked exclusively to pay for Social Security and Medicare.

The taxes are based on annual wages and salaries of employees and net income of the self-employed. See Chapter 9.

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Taxing America Federal Taxes

Excise TaxesOriginally intended to reduce consumption of

socially unacceptable goods (like what? __________ , ___________ ) or discourage consumption of goods in short supply (like what? ______________ , _______________ ).

Class discussion - does this work?

Transfer TaxesBased on the value of an individual’s _________

transferred by ________ or ____________. These taxes represent a form of wealth redistribution. What effect do you think an estate tax has on savings?

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Foreign Taxes

Income taxes like the U.S. Value-added taxes (the U.S. does NOT

have this). Value-added taxes are like sales taxes, but

they are assessed incrementally on value added throughout production process.

VAT is self-enforcing because taxpayer can claim a credit for VAT paid to supplier with proof of payment.

Foreign governments compete for tax dollars and foreign investment through rates and tax preferences.

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Dynamic Nature of Taxation

New tax bases:Urban tax bases decline - what are

alternatives?Gambling - where is the incidence of

taxation?Sales and use tax - What did the

Supreme Court case Quill Corporation vs. North Dakota hold? What are the implications for internet commerce?

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Three Primary Sources of Tax Law

What is the source of statutory authority?

What are examples of administrative authority?Go to www.irs.gov and look at a

Revenue Ruling.

Judicial authority. A Supreme Court verdict is the equivalent of law. Other jurisdictions carry less weight (hierarchical).

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Looking Ahead to Chapter 2

Assume you are the fair-minded tax manager of LilLand. Queen Lil demands that you collect $36,000 from the following four taxpayers: A earns $100,000 B earns $50,000 C earns $25,000 D earns $10,000.

Write on a piece of paper how much you will collect from each taxpayer. The sum must be $36,000. Turn this in on your way out, and we’ll discuss next time.