Chapter 1 (2) - Types of Taxes and the Jurisdictions That...

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Types of Taxes and the Jurisdictions That Use Them Learning Objectives After studying this chapter, you should be able to: 1. Define the terms tax, taxpayer, incidence, and jurisdiction. 2. Express the relationship between tax base, tax rate, and tax revenue as a formula. 3. Identify and describe the types of taxes levied by local governments, state governments, and the federal government. 4. Explain why different taxing jurisdictions often compete for revenues from the same taxpayer. 5. Identify the reasons why governments continually modify their tax systems. 6. Describe the three primary sources of federal tax law. hen an explorer plans a journey through unknown territory to a new des- tination, his preparations include a careful inspection of a map of the ter- ritory. The explorer familiarizes himself with topographic features such as major highways, mountain ranges, lakes and rivers, and population centers. He may gather information concerning the climate of the region and the language and customs of its inhabitants. This preliminary knowledge of the environment helps the explorer chart his course and minimizes the danger that his progress will be im- peded by unforeseen circumstances. W For students who are just beginning their study of taxation, the tax environ- ment in which individuals and organizations must function is unknown territory. Chapter 1 serves as a map of this territory. The chapter begins by describing the tax environment in terms of the basic relationship among taxes, taxpayers, and govern- ments. It identifies the major types of taxes that businesses routinely encounter and examines how governments with overlapping jurisdictions compete for tax rev- enues. By reading the chapter, you will gain a familiarity with the tax environment that will serve you in good stead as we journey toward an understanding of the role of taxes in the business decision-making process. The chapter should alert you to two important features of the tax environment. First, taxes are pervasive because they are so widespread, come in so many varieties.
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and affect virtually every aspect of modern life. Second, taxes are dynamic because the tax laws change with amazing frequency. The rate of change reflects the fact that the economic and political assumptions on which tax structures are based are constantly evolving. While these two features make the current tax environment a challenging one for business managers, they also create a vitality that makes the study of tax planning so fascinating. Some Basic Terminology Taxes, Taxpayers, Incidence, and Jurisdiction Before beginning our exploration of the tax environment, we must define some basic terminology. A tax can be defined simply as a payment to support the cost of govern- ment. A tax differs from a fine or penalty imposed by a government because a tax is not intended to deter or punish unacceptable behavior. On the other hand, taxes are com- pulsory; anyone subject to a tax is not free to choose whether or not to pay. A tax differs
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Chapter 1 (2) - Types of Taxes and the Jurisdictions That...

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