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Principles of Taxation. Introduction and Chapter 1 Types of Taxes and the Jurisdictions that Use Them. 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.

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principles of taxation

Principles of Taxation

Introduction and Chapter 1 Types of Taxes and the Jurisdictions that Use Them

introduction to students
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
taxing america
Taxing America
  • Basic Terminology
  • Tax Base, Rate, and Revenue Relationship
  • Classifying and Describing taxes
  • Tax Policy
  • Sources of Law
taxing america4
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
taxing america5
Taxing America
  • Tax Base X Tax Rate = Tax Revenue
    • Tax Base:
    • Tax Rate:
    • Tax Revenue:
transaction or activity based taxes
Transaction or Activity-Based Taxes
  • What are examples of transaction (event) based taxes?
  • What is an example of an activity based tax?
taxing america7
Taxing America
  • Taxes Imposed by Jurisdiction
    • Local
      • Property, Earnings, and Sales Taxes
    • State
      • Sales and Income Taxes
    • Federal
      • Income Taxes
      • Employment Taxes
      • Excise Taxes
      • Transfer Taxes
taxing america8
Taxing America
  • Local Taxes
    • Real 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 Tax
      • Usually piggy-backed with state sales tax and remitted to local authority.
taxing america9
Taxing America
  • State Taxes
    • Sales and Use Tax
      • How is the use tax related to the sales tax?
      • What kinds of property is the use tax easily enforced against?
    • Excise Tax
      • What are common goods subject to an excise tax?
      • See Q13
      • What 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.
taxing america11
Taxing America
  • Federal Taxes
    • Income TaxIn your own notes, briefly describe the history of the US income tax.
taxing america12
Taxing America
  • Federal Taxes
    • Employment Taxes
      • The 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.
taxing america13
Taxing America
  • Federal Taxes
    • Excise Taxes
      • Originally 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 Taxes
      • Based 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?
foreign taxes
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.
dynamic nature of taxation
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?
three primary sources of tax law
Three Primary Sources of Tax Law
  • What is the source of statutory authority?
  • What are examples of administrative authority?
    • Go to and look at a Revenue Ruling.
  • Judicial authority. A Supreme Court verdict is the equivalent of law. Other jurisdictions carry less weight (hierarchical).
looking ahead to chapter 2
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.