8e-sm-09 - Federal Tax Research, Eighth Edition Page 9-1...

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Federal Tax Research, Eighth Edition Page 9-1 CHAPTER 9 STATE TAX SERVICES Discussion Questions 9-1. There are numerous reasons for the emphasis on state and local tax planning. State and local tax environment is becoming increasingly complex and challenging to navigate due to states ever increasing expansion of their taxing systems. Taxpayers find increasingly difficult to stay abreast of and comply with the evolving requirements. For many businesses this is an untapped planning opportunity in which practitioners can provide value-added services. While each of the various taxes paid to states may be small, the percentage of total state taxes paid by a business can be almost one-half of its tax bill. Coordinated state tax planning can substantially reduce this percentage, especially where the taxpayer operates in various state and local taxing jurisdictions and has some flexibility as to where its property and labor force are located. Page 308 9-2. The necessity for greater revenues to meet the needs of constituents has caused states to raise the tax burdens of citizens. Tax increases for state and local governments is especially critical when the economy is in a down turn. During these times, the demands for social programs such as welfare and Medicaid build, while the tax bases for states are reduced due to the slow economy. In addition, state and local governments’ financial burdens have escalated due to cutbacks in Federal aid. These cuts come at a time when public services demanded by citizens are increasing. The combination of these effects has caused the state and local tax burdens to increase substantially over the last fifty years. Since most states constitutionally cannot operate at a deficit, the state and local tax obligations become more of a burden for the taxpaying businesses and individuals. Pages 308 and 312 9-3. The national average for state taxes is 11%, and the average for Federal and state taxes is about 33%. Thus, state taxes are 1/3 of the national tax burden. However, the tax burden varies across states, with New York having the highest percentage and Alaska having the lowest. Page 310 9-4. Early taxing systems were based on the makeup of the local economy. Thus, in the southern states where cotton was the main commodity, taxes were based on imports/exports, whereas in the northern states taxes were based on the production from farmland. Page 312 9-5. State income taxes were introduced in Wisconsin in 1911 and gradually spread to most other states and several municipalities. New York was the first city to have a sales tax in the 1930s.
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Page 9-2 Instructor Manual Page 312 9-6. Every year the Tax Foundation determines “Tax Freedom Day,” the hypothetical day when taxpayers have earned enough money to pay for all of their taxes and now can “work for themselves.” Page 312 9-7. The constitutional validity of state tax laws commonly is challenged in courts today, whereas Federal taxes are rarely questioned on their constitutionality any more. State and local tax challenges address not only
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This note was uploaded on 09/08/2011 for the course ECON 3301 taught by Professor Clavin during the Spring '10 term at Hartford.

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8e-sm-09 - Federal Tax Research, Eighth Edition Page 9-1...

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