Tax Study Guide

Chapter 1:
• Two important features of the tax environment:
o taxes are PERVASIVE because they are so widespread, come in so many varieties, and affect virtually every aspect of modern life
o taxes are DYNAMIC because the tax laws change so frequently
• Tax: a payment to support the cost of government; not intended to deter or punish unacceptable behavior like fines or penalties
o not an assessment of benefits; it’s a means of distributing the burden of the cost of government
• Taxpayer: any person or organization required by law to pay a tax to a governmental authority
o “person”: refers to both natural persons (indivs) and corporations
• Incidence: of a tax refers to the ultimate economic burden represented by the tax
• Jurisdiction: the right of a government to levy a tax on a specific person or organization
o exists because of some rational linkage between the government and the taxpayer
o has jurisdiction over any indiv who is a US citizen or who permanently resides here
o also has jurisdiction over indivs who are neither US citizens nor residents but who earn income from a source within the US
• Tax Base: is an item, occurrence, transaction, or activity with respect to which a tax is levied
o usually expressed in monetary terms
o ex) real property taxes are levied on the ownership of land and buildings, and the dollar value of the property is the tax base
o Tax (T) = Rate (r) x Base (B)
• Flat Rate: a single percentage that applies to the entire tax base
• Graduated Rate: many types of taxes use a graduated rate structure consisting of multiple percentages that apply to specified portions or brackets of the tax base
• Revenue: refers to the total tax collected by the government and available for public use
• Event or Transaction Based: a tax can be event or transaction based so that the tax is triggered only when an event occurs or a transaction takes place
o ex) estate tax levied on the transfer of property from a decedent to the... [continues]

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