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B RUNORI C HAPTER 8 O THER S TATE T AXES. E XCISE T AXES Special for selective sales taxes Regularly taxed products Alcohol Fuel Tobacco Hotel rooms Car.

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Presentation on theme: "B RUNORI C HAPTER 8 O THER S TATE T AXES. E XCISE T AXES Special for selective sales taxes Regularly taxed products Alcohol Fuel Tobacco Hotel rooms Car."— Presentation transcript:


2 E XCISE T AXES Special for selective sales taxes Regularly taxed products Alcohol Fuel Tobacco Hotel rooms Car rentals Telecommunications

3 A DMINISTRATION OF E XCISE T AXES Usually tallied as per unit as opposed to being an ad valorem Almost always passed along to the final purchaser Tax incidence is an important consideration Vendors are allowed to retail a small portion of the tax to pay for administrative costs. Federal government imposes excise taxes on the same set of products.

4 R ATIONALE FOR THE T AS Revenue and nonrevenue purposes Deter socially undesirable activities Compensation to government for the substantial costs associated with the products’ consumption Deterring the consumption of harmful products is not the only rationale for excise taxes. Some excise taxes are targeted to fund specific services related to the products and services taxed.

5 R ELIANCE ON S IN T AXES TWO F UND G OVERNMENT Some excise taxes unintentionally become an important part of the state’s budget. Some states find themselves somewhat reliant on the purchase of these harmful products. This reliance creates a difficult situation: the state must be trying to deter used by citizens while also protecting his revenue source, placing a state in the position of taxing a product because it is harmful, but trying not to tax it too much because it’s sales raise substantial revenue.

6 EXCISE T AX C HALLENGES Excise taxes do not necessarily keep pace with price levels at a given tax rate. Excise taxes are generally impose per unit, as opposed to ad valorem. As inflation occurs, the price of the underlying product increases, but the related tax revenue does not. One of the biggest problems with most state excises, is that they are regressive. Poorer citizens pay a far greater percentage of their income in excise taxes than do wealthier taxpayers.

7 O UTLOOK FOR E XCISE T AXES There is little opportunity to broaden the base; the few product categories that can accommodate an excise tax are already taxed by many states. At some point, increasing excise tax burdens either severely deters use of a product or encourages widespread evasion. As prices for products subject to excises have increased, calls for reducing excises have also risen.

8 S EVERANCE T AXES Severance taxes are levied on nonrenewable natural resources extracted from lands and water. They are impose per unit ad valorem (on the value of the natural resources extracted), or by a combination of the two. Virtually all severance tax burdens can be exported to out-of- state residents and businesses. The tax primarily falls on the owners of the property (rather than on broad segments of society) and can easily be passed on as part of the sales price of the minerals, or other natural resources. Severance taxes are imposed both for the substantial revenue they raise and to reimburse the state for the loss of its natural resources. Severance taxes are a way to compensate the state for that permanent loss. For this reason, severance tax revenue is often placed in a trust, or other long-term fund designed to produce revenue when the natural resources are no longer available.

9 S TATE P ROPERTY T AXES Property taxes have always been the primary source of revenue for local governments. Types of property: Real property. Tangible personal property. Business property. The pressures on business, consumption, and even personal income taxes may leave states no other choice but to rely more heavily on real property taxes. Given the reforms that have taken place where the past three decades, statewide property taxes will likely be considered politically acceptable to lawmakers.

10 W EALTH T RANSFER T AXES Unlike the federal government, states impose two types of taxes at the time of death. All states impose an estate tax. An estate taxes, a levy on the privilege of transferring property at death, measured by the value of this state. A second type of levy imposed by the states at the time of death is the inheritance tax. An inheritance tax is levied on the privilege of receiving property from a deceased relative. Inheritance taxes are imposed, independent of federal estate tax liability

11 E STATE T AXES In every state, the estate tax is designed to be absorbed by the credit allowed under the federal estate tax for state death taxes. A person subject to federal estate taxes receives a credit for stick state estate taxes up to a certain amount. Most states impose their estate taxes at rates to ensure that the entire amount will be credited against the federal tax bill. Indeed, the majority of states make their estate taxes equal the federal estate tax credit. The estate tax credit system is in reality nothing more than an intra-government transfer of funds. It is not surprising that states take advantage of the system, as there is no downside, economically or politically.

12 I SSUES WITH W EALTH T RANSFER T AXES Opponents of the estate tax claim that it discourages savings and inhibits capital formation; they argue that it is little more than a manifestation of the politics of envy. Those who support the federal estate tax sites progressivity. Because only the wealthiest 2% of the population ever pay the federal tax, it closely adheres to the concept of ability to pay. There are also less sophisticated arguments based on the evils of inherited wealth. Those who inherit substantial wealth, this line of thinking goes, might not be productive members of society. Both sides agree that people spend far too much money trying to avoid the tax, although they disagree about whether that spending reflects excessive rates or too many loopholes.

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