Introduction to Taxation Concepts

Introduction to Taxation

• Taxation is a fundamental concept in governance.
• Inherent powers of the state are key to taxation.

Comparison of Inherent Powers of the State

• Police Power: Used to promote public welfare by regulating liberty and property. The government can destroy property deemed noxious.
• Power of Taxation: Raises revenue for government use.
• Power of Eminent Domain: The state can acquire private property for public use, with just compensation.

Introduction to Taxation - Particulars

• Taxation: Government, or political subdivision, collects funds.
• Purpose: Funds are collected to support the government.
• Eminent Domain: The government or political subdivisions have this power. Public service/utilities may also have this power; this power can facilitate the taking of private property.
• Police Power: The use of property is regulated for the sake of public welfare and is not compensable. This power only rests with the government or its subdivisions.

Introduction to Taxation - Particulars (continued)

• Taxation: Affects a community or class of individuals. The money contributed becomes public funds. This protects privileges of living in an organized society; taxes pay for established and safeguarded society.
• Eminent Domain: Affects an individual, a particular property owner. There is a transfer of rights to the property. Market value of the property is what the owner receives for the transfer.
• Police Power: Affects community, or a class of individuals. There is no transfer of title. Restraint of injurious use of property, only. Indirect benefits from the maintenance of a healthy society.

Introduction to Taxation - Particulars (continued)

• Amount of Imposition: Generally, there's no limit, but must not be excessive, unreasonable, or confiscatory.
• Relationship to Constitution: Subject to constitutional limitations that include no impairment of the obligation of contracts.
• Eminent Domain (Comparison): Inferior to the impairment prohibition in government. Private property cannot be taken without a fair market value.

Introduction to Taxation - Similarities

• Nature: Taxes emanate from the State; the procedures are controlled by state law, or legislatively.
• Actions: The state's powers/actions may interfere with private/individual activity.
• Compensation: Compensation to affected persons is presumed.

Introduction to Taxation - Definition and Concept

• Revenue Raising Measure: Government raises income to pay for expenses; defines the mechanism to apportion the cost of government.
• As a Power: The inherent power of the State to demand enforced contributions. It is a destructive power interfering with private property and personal rights for government support.

Introduction to Taxation - Purpose

• Revenue-raising (Fiscal): Funds for state and citizen needs/welfare. Essential for an effective government.
• Non-revenue/Regulatory: Regulations/incentives to achieve specific government objectives, support industry, or promote general welfare.

Introduction to Taxation - Purpose (continued)

• Taxation: Promotes general welfare (police power); encourages business growth; protects local industries from foreign competition; handles inflation/recession via incentives.
• Taxation (continued): Reduces wealth inequalities (progressive taxes); promotes economic growth through incentives or exemptions; generates funding for science/invention, education, police force; supports government health measures (sin taxes).

Introduction to Taxation - Nature

• Inherent in Sovereignty: Power to tax is an attribute of sovereignty, emanating from necessity. A burden to safeguard State's sovereignty.
• Essentially Legislative: The sole power to impose taxes resides in the legislative body (e.g., Congress).
• Subject to Limitations: Constitutional and inherent limitations govern taxing power; not superior to other State powers.

Introduction to Taxation - Elements of Taxation

• Enforced Proportional Contribution: Proportional, not dependent on the will of the taxed person. It is imposed by the state.
• Imposed by Sovereignty: Levied by the State to support the government.

Introduction to Taxation - Characteristics of Taxing Power

• Comprehensive: Covers people, business, activities, professions, rights, and privileges.
• Unlimited: Not impacted by the regulation, discouragement, or halting of any activity. Courts are unlikely to interfere.
• Plenary/Complete: Taxes are the lifeblood of the government, and are vital to the collection of funds for the government, collection will be done with care, as needed.
• Supreme: The selection of subject for taxation is concerned, but does not mean the taxing power is superior to other inherent powers of the State.

Introduction to Taxation - Characteristics of Tax

• Enforced Contribution: The government demands this.
• Proportionate Character: Usually based on ability to pay. The tax rule must be uniform and equitable; A progressive tax system should be developed.
• Public Purpose: Revenues cannot be used for private purposes or to benefit specific private groups.

Introduction to Taxation - Characteristics of Tax (continued)

• Generally Payable In Money: Can be payable in kind.
• Personal to Taxpayer: Liability is direct to the taxpayer.
• Levied on Persons/Property: Levied on the appropriate parties. Rights, acts, privileges. Transactions may influence taxation as well.
• Levied by the State: The state is in jurisdiction over the subject being taxed. The law-making bodies of the state have the power, and the local body can also levy tax subject to guidelines from the state legislature.

Introduction to Taxation - Tax as Distinguished from Other Forms of Exactions

• Tax vs. Tariff: Tax impacts all citizens or transactions; tariff is imposed on international trade.
• Tax vs. Toll: Tax supports government; toll is for use of another's property (e.g., road).
• Tax vs. License/Permit Fee: License/permit fees are for regulation; taxes are for revenue.
• Tax vs. Special Assessment: Special assessments are based on benefits; taxes are not necessarily linked to benefits.
• Tax vs. Debt: Debt is based on contracts; taxes are not (except in special cases).
• Tax vs. Penalty: Penalties are punishments, not revenue measures.

Introduction to Taxation - Theory and Basis of Taxation

• Lifeblood theory: The government needs taxes to function and operate. Taxes are essential for an operational government.
• Necessity theory: Government exists to defend the nation, maintain infrastructure, create public goods and services, and maintain society; taxes are the means to fund this necessity.
• Benefits-protection theory: Citizens' taxes pay for the benefits the government offers (education, safety).

Introduction to Taxation - Jurisdiction Over Subject & Objects

• Territorial Limits: Taxes cannot be levied outside of the State's borders. Government has no jurisdiction in another state.
• Jurisdictional Limits: Cannot tax things/people beyond borders.
• Protection: Property/persons outside the state have no right to protection from it. Thus, those objects are outside the jurisdiction of that government.
• Proper Subjects/Objects: Within the State's proper control.

Introduction to Taxation - Principles of a Sound Tax System

• Fiscal Adequacy: Tax revenues must match government expenditures.
• Administrative Feasibility: Easy and efficient for both the government and taxpayers.
• Theoretical Justice/Equality: Taxes should be proportionate to taxpayer's ability to pay, and the system should be uniform.

Introduction to Taxation - Stages of Taxation

• Legislative Act (Levy/Imposition): Deciding how to collect taxes (who pays, the rate, method of collection). Legislative power allows for discretion as to the purpose, subjects, and amount of tax levied.
• Executive Act (Assessment/Collection): Collecting taxes, as determined by the legislative. Tax collection is implemented through administrative agencies, like the Bureau of Internal Revenue.
• Taxpayer's Act (Payment): Taxpayers pay taxes. Includes the options and schemes available to taxpayers.
• Executive/Taxpayer Act (Refund): Filing for a refund if necessary.

Introduction to Taxation - Requisites of a Valid Tax

• Public Purpose: The tax must be used for a legally sound public purpose.
• Uniform Rule: Taxation rules should be uniform.
• Jurisdiction: The taxed person/property must be within the government's jurisdiction.
• Due Process Clause: Collection practices must conform to proper legal procedures.
• Constitutional Limitations: Tax measures can't violate the Constitution.

Introduction to Taxation - Kinds of Taxes

• As to Object: personal, poll, or capitation; property; privilege/excise.
• As to Burden/Incidence: direct (taxes that cannot be shifted); indirect (taxes that can be passed on to others).
• As to Tax Rates: specific (fixed amount, e.g., per unit, by weight); ad valorem (proportionate to value); mixed (features of both).
• As to Purpose: general/fiscal; special/regulatory; or for special purposes.
• As to Scope: national or municipal/local.
• As to Graduation: progressively increase or decrease with tax base; proportionate; or digressive.

Explore the essential concepts of taxation, including the government's inherent powers such as police power, taxation, and eminent domain. This quiz examines how these powers support governance and public welfare. Understand their critical roles in resource allocation and regulation.