Principles of Taxation

Introduction and Chapter 1 Types of Taxes and the Jurisdictions that Use Them
McGraw-Hill/Irwin
©The McGraw-Hill Companies, Inc., 2002

Introduction to Students Slide 1-2  Taxes as Business Costs .  Objectives:  tax policy: helps understand law.. become better informed voter  link finance and taxation .NPV of after-tax cash flows . Inc.why is this different from tax minimization?  Taxes as Household Expenditures .tax deferral  framework of taxation is stable McGraw-Hill/Irwin ©The McGraw-Hill Companies.Maximize after-tax values . 2002 .tax bite is 3 / 8 hours.

Taxing America Slide 1-3      Basic Terminology Tax Base. Inc. and Revenue Relationship Classifying and Describing taxes Tax Policy Sources of Law McGraw-Hill/Irwin ©The McGraw-Hill Companies. 2002 . Rate..

. see Q4. 9 McGraw-Hill/Irwin ©The McGraw-Hill Companies. Not always the person who pays the tax.Taxing America Slide 1-4  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. 2002 . Q6. Inc. • Jurisdiction = See IR5.

Taxing America Slide 1-5  Tax Base X Tax Rate = Tax Revenue  Tax Base:   Tax Rate:   Tax Revenue: McGraw-Hill/Irwin ©The McGraw-Hill Companies.. 2002 . Inc.

Inc.. 2002 .Transaction or ActivityBased Taxes Slide 1-6  What are examples of transaction (event) based taxes?  What is an example of an activity based tax? McGraw-Hill/Irwin ©The McGraw-Hill Companies.

2002 . and Sales Taxes  State Sales and Income Taxes  Federal Income Taxes Employment Taxes Excise Taxes Transfer Taxes McGraw-Hill/Irwin ©The McGraw-Hill Companies.Taxing America Slide 1-7  Taxes Imposed by Jurisdiction  Local Property. Earnings.. Inc.

2002 . IR2.  Sales Tax  Usually piggy-backed with state sales tax and remitted to local authority. McGraw-Hill/Irwin ©The McGraw-Hill Companies.Taxing America Slide 1-8  Local Taxes  Real property and Personal Property Taxes  Why are these called “ad valorem” taxes? See Q7. Many big cities impose.. Inc.  Earnings Taxes  Sometimes imposed on individuals who work in one city but live elsewhere.

Inc.Taxing America Slide 1-9  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? McGraw-Hill/Irwin ©The McGraw-Hill Companies.. 2002 .

Most refer to federal taxable income as the starting point for determining corporate taxable income for state purposes.Taxing America Slide 1-10  State Taxes  Personal Income Tax  _________________ states and the District of Columbia impose a personal income tax. Inc. 2002 . See IR7  Corporate Income Tax  _________________ states and the District of Columbia tax corporations on their net income. McGraw-Hill/Irwin ©The McGraw-Hill Companies.. Tax rates vary considerably from state to state. See Chapter 12 for how to apportion income among states.

briefly describe the history of the US income tax. McGraw-Hill/Irwin ©The McGraw-Hill Companies. 2002 .Taxing America Slide 1-11  Federal Taxes  Income Tax In your own notes. Inc..

See Chapter 9.Taxing America Slide 1-12  Federal Taxes  Employment Taxes  The two largest programs sponsored by the federal government are the ___________________ and ________________. McGraw-Hill/Irwin ©The McGraw-Hill Companies. 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 selfemployed. Inc.. . 2002 .

Inc. ___________ ) or discourage consumption of goods in short supply (like what? ______________ . What effect do you think an estate tax has on savings? ©The McGraw-Hill Companies..Taxing America Slide 1-13  Federal Taxes  Excise Taxes  Originally intended to reduce consumption of socially unacceptable goods (like what? __________ . These taxes represent a form of wealth redistribution.  Class discussion . 2002 McGraw-Hill/Irwin .does this work?  Transfer Taxes  Based on the value of an individual’s _________ transferred by ________ or ____________. _______________ ).

 Value-added taxes are like sales taxes.Foreign Taxes Slide 1-14  Income taxes like the U. but they are assessed incrementally on value added throughout production process. 2002 .S. Inc.  Foreign governments compete for tax dollars and foreign investment through rates and tax preferences. McGraw-Hill/Irwin ©The McGraw-Hill Companies..  VAT is self-enforcing because taxpayer can claim a credit for VAT paid to supplier with proof of payment.S. does NOT have this).  Value-added taxes (the U.

North Dakota hold? What are the implications for internet commerce? McGraw-Hill/Irwin ©The McGraw-Hill Companies.what are alternatives?  Gambling .where is the incidence of taxation?  Sales and use tax .What did the Supreme Court case Quill Corporation vs.Dynamic Nature of Taxation Slide 1-15  New tax bases:  Urban tax bases decline . Inc. 2002 ..

irs. A Supreme Court verdict is the equivalent of law. 2002 ..gov and look at a Revenue Ruling. McGraw-Hill/Irwin ©The McGraw-Hill Companies.  Judicial authority. Inc. Other jurisdictions carry less weight (hierarchical).Three Primary Sources of Tax Law Slide 1-16  What is the source of statutory authority?  What are examples of administrative authority?  Go to www.

Inc.000 D earns $10.000..000 B earns $50.  Write on a piece of paper how much you will collect from each taxpayer. Queen Lil demands that you collect $36. The sum must be $36. and we’ll discuss next time. 2002 .000 from the following four taxpayers:     A earns $100.Looking Ahead to Chapter 2 Slide 1-17  Assume you are the fair-minded tax manager of LilLand.000. Turn this in on your way out. McGraw-Hill/Irwin ©The McGraw-Hill Companies.000 C earns $25.