Economics
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Boundless Economics
Taxes and Public Finance
Taxation in the United States
Economics Textbooks Boundless Economics Taxes and Public Finance Taxation in the United States
Economics Textbooks Boundless Economics Taxes and Public Finance
Economics Textbooks Boundless Economics
Economics Textbooks
Economics
Concept Version 5
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Financing State and Local Government

Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.

Learning Objective

  • Give an example of federal, state, and local taxes


Key Points

    • State and local governments collect taxes from residents to support corresponding state and local government activities. Examples of these services include maintenance of public parks and provision of a police force.
    • Property tax is an example of a local tax. It is imposed on the value of real estate.
    • Sales tax may be imposed by both a state and local government. It is charged at the point of sale of the good or service.
    • Income tax may be imposed by the federal, state, or local government. Tax rates vary by location, and often by income level.

Terms

  • sales tax

    A local or state tax imposed as a percentage of the selling price of goods or services payable by the customer. The tax is not recognized as the seller's earnings; the seller only collects the tax and transmits the same to local or state authorities.

  • property tax

    An (usually) ad valorem tax charged on the basis of the fair market value of property.

  • income tax

    A tax levied on earned and unearned income, net of allowed deductions.


Full Text

Taxes are important to federal, state, and local governments. They are the primary source of revenue for the corresponding level of government and fund the activities of the governmental entity. For example, on a local level, taxes fund the provision of common services, such as police or fire department, and the maintenance of common areas, such as public parks . On a state level, taxes fund the school systems, including state universities. On a federal level, taxes are used to fund government activities such as the provision of welfare and transfer payments to redistribute income.

Pearl Hill State Park

State parks like Pearl Hill, located in Townsend, Massachusetts, rely on tax revenue for support and maintenance.

Example of a Federal, State, and Local Tax

Income taxes are taxes imposed on the net income of individuals and corporations by the federal, most state, and some local governments. State and local income tax rates vary widely by jurisdiction and many are graduated, or increase progressively as income levels increase. State taxes are generally treated as a deductible expense for federal tax computation.

Example of a State Tax

Sales taxes are imposed by most states on the retail sale price of many goods and some services. Sales tax rates also vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed. Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.

Example of a Local Tax

Property taxes are imposed by most local governments and many special purpose authorities based on the fair market value of property. Property tax is generally imposed only on real estate, though some jurisdictions tax some forms of business property. Property tax rules and rates vary widely.

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