Taxation

The federal government also imposes taxes on the manufacture, purchase, sale, or consumption of certain commodities. These levies, called excise taxes, are assessed on items such as alcohol, tobacco, and firearms. There is an excise tax imposed on gasoline and diesel fuel and the revenue derived from this motor-fuel tax is earmarked for highway construction, improvement, and maintenance. There also is a luxury tax, which has been repealed on all items except automobiles. The tax is assessed on the amount that the vehicle's price exceeds the base sticker amount. This tax will be phased out by the year 2002.

Import duties are also considered excise taxes. Import duties are taxes, or tariffs, on merchandise imported into the United States from other countries. The purpose of the tariffs is to protect the interests of U.S. manufacturers against foreign competitors. The duty is meant to level the playing field with countries, such as Japan, who have imposed strict import limits on U.S. goods into their country. Additionally, U.S. residents may have to pay a duty to the U.S. Customs Service on items they have purchased in other countries and are bringing into the United States.

State and local governments also assess a variety of revenue-generating taxes. Most states and some cities levy individual income taxes with the lower rates than federal tax rates. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose state income taxes. Sales taxes, especially at the retail level, are a major source of income for many local governments. The sales tax is considered a regressive tax because both the poor and the rich pay the same amount. Thus the tax consumes a larger portion of income of the low-income taxpayers. To correct this problem, some goods, which are considered essentials, are exempt from a sales tax altogether or taxed at a lower rate. Examples of essential goods include food, clothing, and drugs.

State taxes are also imposed on real and personal property. Real property is permanent and nonmovable and includes land and buildings. By its nature, real property can only be taxed by the state where it is located. The process of determining and listing the value of real property for taxation purposes is called an assessment. A tax is then levied based on a certain percentage of the assessed value. Additions or improvements to real estate will cause the assessed value of a property to increase. If a taxpayer fails to pay property taxes, a tax lien will be imposed against the owner and the property will not be able to be sold until the back taxes are paid.

Personal property is movable and classified as either tangible or intangible. Tangible property is physical property that has value in and of itself, such as automobiles or equipment. The value of intangible property does not come from the property itself but from the rights it assigns. Examples of intangible property include accounts receivable, stocks, and bonds. Tangible personal property that is in a permanent location can only be taxed by one state. Intangible personal property, however, may be subject to taxation by several states.

Corporations or manufacturers are often assessed special business-related taxes. Sales taxes may be levied on goods at various stages throughout the production and distribution of a product. Because these taxes are often assessed on gross receipts that have not had expenses deducted, it is possible that the taxable value of the product at a given stage includes the taxes already paid at an earlier stage. To avoid this situation from happening, a value-added tax method is often used. The value-added tax is determined using net receipts calculated by subtracting expenses from total sales. Corporations are also liable to pay corporate franchise taxes. These taxes are measured by income and considered a cost of the privilege of doing business in a state. Franchise, in this case, is a privilege conferred by a government grant to a company; for instance, a franchise to operate a train system.

Employers must pay taxes to their state for unemployment compensation, an insurance program for employees who lose their jobs through no fault of their own. A person who is fired for good cause, such as misconduct, does not qualify for unemployment insurance. The program was instituted by the federal government through the Social Security Act of 1935 but it is administered by individual states. Unemployment compensation provides unemployed individuals a certain amount of money each week for a specified time.

There are also state and federal estate and inheritance taxes. The estate tax is a levy for the privilege of transferring property when someone dies and is assessed on the entire estate before its distribution to heirs. The inheritance tax is the tax imposed to each heir for the privilege of transferring the descendent's property to them.