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Lecture by:Corolyn E. Clark, Ph.D., CFPSaint Josephs UniversityText & Supplementary Documentation:Principles of Taxation 2014 EditionCopyright 2014 by The McGraw - Hill Companies, Inc.CHAPTER 1TAXES AND TAXING JURISDICTIONS

Chapter 1Learning ObjectivesDefine the terms tax, taxpayer, incidence and jurisdictionExpress the relationship between tax base, rate, and revenue as a formulaDescribe the taxes levied by local, state, and federal governmentDescribe the three primary sources of federal tax lawTax TerminologyTax: Compulsory payment to support the cost of governmentContrast with fine/penalty or user feeTaxpayer: Any person or organization that pays tax Includes individuals and corporationsIncidence: Ultimate economic burden of a taxMay not fall on the person or organization who pays taxJurisdiction: Right of a government to tax

Chapter 1Learning ObjectivesDefine the terms tax, taxpayer, incidence and jurisdictionExpress the relationship between tax base, rate, and revenue as a formulaDescribe the taxes levied by local, state, and federal governmentDescribe the three primary sources of federal tax lawBase, Rate and Revenue: The RelationshipTax BaseAn item, occurrence, transaction or activity on which a tax is leviedExpressed in monetary termsTax RateFlat rateSingle rate applies to entire tax baseGraduatedMultiple rates apply to portions (brackets) of tax baseThe Formula TAX = BASE x RATERevenue equals total tax collected Revenue can be increased by increasing either rate or baseWays to Characterize TaxesTransaction or Activity-Based TaxesBased on frequency with which tax occurs Transaction-based sales, excise, estate, gift taxesActivity-based income taxEarmarked TaxesLink to specific government expendituresExamples includeRevenues generated from local property taxes finance public schoolsRevenues generated from payroll/self-employment taxes finance Social Security/MedicareRevenues generated from environmental excise taxes finance cleanup/disposal of toxic wastesChapter 1Learning ObjectivesDefine the terms tax, taxpayer, incidence and jurisdictionExpress the relationship between tax base, rate, and revenue as a formulaDescribe the taxes levied by local, state, and federal governmentDescribe the three primary sources of federal tax lawState and Local TaxesProperty (ad valorem) TaxReal property taxPersonal property taxHousehold and business tangiblesIntangiblesSales/Use TaxBroad-basedPersonal responsibility for use taxExcise TaxImposed on retail sale of specific goods/servicesCigarettes and gasolineHotel and motel accommodationsIncome TaxPersonalCorporate

Federal TaxesIndividual Income TaxCorporate Income TaxEmployment TaxesSocial SecurityMedicareUnemployment TaxesExcise TaxesTransfer TaxesGiftEstateGeneration-skipping

History of the Federal Income TaxPre-1861Taxation included tariffs, excise taxes and property taxes1861 1871Income tax enacted to pay for Civil War expired in 18721894First permanent income tax legislation passedStruck down by Supreme Court as unconstitutional1913Sixteenth Amendment to the U.S. Constitution passed and made income tax constitutionalInternal Revenue CodeEnacted in 1939 major revisions in 1954 and 1986Chapter 1Learning ObjectivesDefine the terms tax, taxpayer, incidence and jurisdictionExpress the relationship between tax base, rate, and revenue as a formulaDescribe the taxes levied by local, state, and federal governmentDescribe the three primary sources of federal tax lawSources of Tax LawStatutory authority Internal Revenue CodeAdministrative authorityTreasury regulationsIRS Revenue Rulings and Revenue ProceduresFederal judicial authoritySupreme CourtAppellate CourtsTrial CourtsTax CourtDistrict CourtCourt of Federal Claims

TSummaryTax Base x Tax Rate = Revenue Generated

State and local taxes include real and personal property, sales/use, excise and income taxes.Federal taxes include individual income, corporate income, employment, unemployment, excise and transfer taxes.

Primary sources of tax law include the Internal Revenue Code, Treasury Regulations, IRS Revenue Rulings, IRS Revenue Procedures and decisions by Trial, Appellate and Supreme Courts.