The United States taxation is a complex system that requires individuals and companies to pay different kinds of taxes to the Government. It includes the state and federal governments as well as the local government. By local government, we mean one or more of the township, municipal, district or county govt.
There are different rules and laws that guide the amount and time of taxes that have to be paid. The State, Local and Federal taxes are different from each other. Each has its own authority to charge taxes. The Federal Govt. has no right to interfere with state taxation, and similarly, the State Govt. can’t interfere with the functioning of local Govt. in case of taxation. Each state has own tax laws and within each state, the counties or town Govt. has its own tax rule. This is why the US tax system is said to be so complex.
Some Common Taxes, Everyone Has To Pay:
Let’s understand some common taxes that are to be paid by the citizens of the United States:
Income Tax: This is probably the most known and common form of taxation that is levied on the financial income of each and every individual, corporation and other legal entities. This tax is paid at both the Federal and State level. Income tax of an individual is collected on a ‘pay as you earn’ basis, where small corrections are made at the end of the year.
Sales Tax: Another common form of taxation is the sales tax. It is the tax levied when any commodity is sold to a customer. It is collected on the basis of ‘you pay for what you spend’ basis. There are a small number of US states who do not levy personal income tax at the state level, thus, their state earnings depend totally on the state sales tax. Most of these states have a large amount of tourism as well as inter-state travelers. The states levy taxes on people who come to the state, ones who would rather not pay anything to the state, otherwise. It thus reduces the burden on its citizens by not levying income tax.
Corporation Tax: This form of taxation is levied on the companies and associations on the capital gains and the profit made by them. Gross revenues minus expenses are generally taken as the earnings. But corporate expenses that relate to capital expenditure are in most cases fully deducted.
Property Tax: This tax is imposed on the value of property owned. This includes the real estate as well as personal property. This form of taxation is levied on a recurrent basis yearly. Tax base is the estimated value of the property in question. Stamp duty and inheritance tax are the two most common forms of event driven property tax. A general tax is levied periodically on personal property of residents. Vehicle and boat registration are a part of these taxes.
Tariffs: Whenever goods move through a political border, import or export tariffs are levied. Originally, tariff was formed to discourage trade, thus encouraging the local industries. But today, it’s mostly used to maintain the border police force or navy.
Value Added Tax: VAT, also known as goods and services tax, is levied on every operation that produces or creates value. For example, some parts of a car are imported by a car manufacturer. Then, the manufacturer will pay VAT to the Government on the purchase price. Now the car manufacturer will sell the car to retail distributors, collecting VAT on the higher price, but remitting to Govt. only the tax related to the “value added”. The last VAT is paid by the eventual customer, who cannot recover any portion of the tax.
There are several other forms of taxation in the United States which include Excises, Inheritance tax, Poll tax, Retirement tax, Wealth tax, toll etc.