Taxation – An Overview
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In the United States, taxation — compulsory contributions imposed by government to pay for its services — has always been an important issue. “No taxation without representation” was a rallying cry of the American Revolution, and in 1773, Boston residents dumped hundreds of chests of tea into the harbor rather than pay a British tax on tea. In the early twentieth century, Justice Oliver Wendell Holmes asserted famously “[t]axes are what we pay for civilized society.” Today, taxation can still be contentious, and it has become more complex, as multiple levels of government all impose charges of various types on individuals and businesses. Today, the federal government, state government and local government can all impose taxes. In addition, numerous special taxing districts at the regional level impose taxes for items such as schools, utilities and transit.
If you have questions about the tax laws, contact our firm to schedule a consultation with a tax attorney.
A tax is a compulsory payment by an individual or business entity to a governmental body. In practice, there may be little practical difference between a tax and a fee or charge. The legal distinctions, however, are important. One reason for this is that many states’ constitutions and/or statues restrict local governments’ ability to raise taxes.
Types of Taxes
Governmental bodies can impose the following types of taxes:
- Income tax — a tax imposed by the federal government and most state and local governments on the net income of individuals and businesses
- Sales tax — a tax levied by the government (usually the state or a city) on the retail price of an item that is collected by the retailer and passed on to the government
- Use tax — a tax imposed by a state to make up for the sales tax lost when an individual buys an item outside of the state, but uses it within the state
- Estate tax — a tax imposed on the transfer of property from a deceased person to his or her heirs; also called death tax
- Gift tax — a federal tax assessed on gifts from one person to another; gifts to tax-exempt charities and to a spouse are generally exempt
- Property tax — a tax assessed on real property by a local government that is generally based on the value of property
Although there is no national sales tax, the federal government imposes an income tax, estate and gift taxes, and excise taxes on specific products or services such as motor fuel and telephone service. The most well known federal tax is the federal income tax.
Federal income tax, authorized by the Sixteenth Amendment to the U.S. Constitution in 1913, is a significant source of the federal government’s revenue.
Federal Action on Taxation of Electronic Commerce
With the ever-increasing use of the Internet to buy and sell goods, the taxation of electronic commerce has become an important issue. In October 1998, Congress passed the Internet Tax Freedom Act, which imposed a three-year moratorium on the ability of state and local governments to impose taxes on access to Internet service. The law also prohibits multiple and discriminatory taxes on electronic commerce. Congress extended the moratorium in 2004. President Bush signed the most recent extension of the law, the “Internet Tax Freedom Act Amendment Acts of 2007,” in November 2007, and it expired on November 1, 2014.
Streamlined Sales and Use Tax Agreement
The rapid increase in electronic commerce beginning in the 1990s put further stress on state tax collections and produced a robust national debate on whether remote sellers should collect taxes. Although there has been no federal legislation to require this, 44 states and the District of Columbia collaborated in the creation of the Streamlined Sales and Use Tax Agreement (SSUTA), which is intended to simplify tax rates and make collection easier by encouraging businesses to voluntarily collect use taxes.
To participate in the Streamlined Sales and Use Tax Agreement, states must first pass the uniform legislation. Under the SSUTA, businesses may register to collect sales and use taxes on sales into member states. In return for registration, these businesses receive the benefits of amnesty for uncollected taxes in member states and simplified reporting of state and local sales tax collection, with only one tax return required per state. Registration is permitted even if the business is located in a state that has not adopted SSUTA.
Speak to a Tax Attorney
Individuals can face a variety of tax-related issues, including tax liens, audits and claims for refunds for overpayment of taxes.
An experienced tax attorney at our firm can assist clients in resolving tax issues.
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