2. GENERAL NATURE OF TAXES
• Taxes are a regulatory device for the government
• The fairness of the tax is considered when it is decided to levy one
• Most of the time they are used for revenue
• They are paid by businesses and individuals alike
3. REASON(S) FOR TAXES
• The primary reason for taxes is to raise revenue
• Compensate for services provided to public
• Business activity regulation is another reason
• Activity is sped up or slowed depending on taxes
• Taxes also influence behavior of consumers
• Taxes on foreign goods to encourage American-made purchases
• “sin taxes” on alcohol and tobacco to discourage purchases
4. FAIRNESS OF TAXATION
Proportional Taxation
Sometimes called a “flat tax”
The tax rate remains the same
despite the amount of taxable
income
Example: Person A’s income is
20,000 while Person B’s is 60,000.
the tax rate is 6%, both persons
pay 6% of their income in taxes.
Progressive Taxation
Based on ability-to-pay principle
Individuals with higher incomes
pay a higher tax rate than those
with a lower income.
Most consider this fair since the
wealthier pay more, but have
more.
Progressive involves a tax
bracket, where your income is in
a range with a specified tax rate,
if it goes up or down the rate
changes according to the
bracket.
Regressive Taxation
Regressive taxes are those where
the actual tax rate decreases as
the taxable amount increases.
Sales tax are actually regressive,
not proportional.
Some states have excluded
taxes on food and clothing to
compensate those with lower
incomes.
5. INCOME TAX
• Federal government gets most of its income from individual income tax
• Most states also have a state income tax to generate revenue
• An income tax is a tax on the profits of businesses and the earnings of
individuals.
• For individuals-tax based on salary and other income earned after deductions
• For businesses-tax usually applies to net profits
• Employers are actually like tax collectors
• Required to withhold income taxes from employees’ pay
6. SALES TAX
• A tax levied on the retail price of goods and services at the time they are
sold
• When a sales tax only applies to certain goods or services, it is an excise tax
• This is the primary revenue for states, but some cities apply one
• Sarasota County has a sales tax of 1 cent, which is why our tax is 7 cents
• There is controversy over whether Internet sales should be taxed as well
7. PROPERTY TAX
• Tax on material goods owned, such as a house or land
• Primary source of revenue for local governments
• There can be a real property tax
• Tax on real estate, which is land and buildings
• Or there may be a personal property tax
• Possessions that are movable, such as furniture or machinery
• The tax is determined by assessed valuation by tax officials
• Stated in terms of dollars per hundred of assessed valuation
• Example: tax rate of $2.80 per $100 on property assessed at $180,000 would be
$5,040
8. EFFECT OF TAXES ON BUSINESS
DECISIONS
• Many decisions businesses make are based upon taxes
• The accounting method they choose to calculate profit is dependent on
taxes, which can affect how much they are affected
• Also, where to locate a business and whether or not to relocate is weighed
heavily by the taxes existing in a state or city
