Business, Legal & Accounting Glossary
Charge levied by a governmental unit on income, consumption, wealth, or other basis. A tax is a financial charge levied by the government on goods and services produced by individuals, groups and institutions. The amount of tax is decided by the government and is dependent on a large number of factors. As tax is an enforced contribution to the government, it is often considered as a pecuniary burden on the payer.
Taxes are generally direct or indirect. Direct tax is collected straight from the organization or the individual. Income tax is a form of direct taxation, where tax is collected directly from the person earning the income. Poll tax, social security tax, business and professional license tax, estate tax and real property tax are other forms of direct taxes.
Indirect taxes are levied on voluntary transactions or other forms of private trade and are collected indirectly from the people through a compulsory surcharge. Sales tax, import tariffs and specialized excise taxes are various kinds of indirect taxes.
The tax burden is often considered as proportional, regressive and progressive according to the distribution effect that taxation has on the economy. Taxes are proportional when the rate at which the tax is charged remains fixed even though the taxable amount increases.
A tax (derived from the Latin phrase taxo) is a compulsory financial charge or some other type of levy imposed upon a taxpayer (as an individual or legal entity) by a governmental organisation in order to fund public expenditures.
A charge imposed by a government on personal income, corporate profits, the value of land, the sale of goods and other financial activities or assets. The government uses the money collected through tax to fund public spending. Taxing what is earned is called direct taxation, while taxing what is spent (i.e. levying the charge on the price of a good or service) is indirect taxation.
Governments use various forms of a tax to raise the revenues needed to fund public expenditures such as defence costs, capital expenditures (i.e. highways), and social programs. A tax can be assessed at the federal level, at the state level, and at the local level. In the US, the federal government depends mostly on the income tax to fund its budget. The federal government uses a graduated income tax<tax system whereby different tax rates apply at different levels of taxable income. Federal taxes are collected and enforced by the Internal Revenue Services (IRS). At the state level, some states use a flat-rate tax and others use a graduated income tax. Although a few states don’t impose an income tax on its residents, most state governments use income tax as well as a sales tax to raise revenues. Some states also levy a use tax on its residents to be applied to the costs of goods purchased outside the state (i.e online purchases). At the local level, county and city government will levy property tax and sometimes a school tax to raise revenues.
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This glossary post was last updated: 29th March, 2020