Posts Tagged ‘federal’

Extension of income tax to the state level

September 2nd, 2009

Wisconsin was the first state to adopt an income tax in 1911. Massachusetts and New York soon followed by adopting income taxes when faced with problems related to World War I. Most other states adopted the income tax as a response to revenue crises created by the Great Depression.

At the state level, definitions of taxable income differ from the federal definition and differ among states. Exemptions, deductions, and rates of taxation vary among states. As of January 2000, Nevada, South Dakota, Washington, and Wyoming did not impose individual or corporate income taxes; Alaska, Florida, New Hampshire, and Texas did not impose an individual income tax and Michigan did not impose a corporate income tax. Formulas are used to allocate the income of multistate corporations among the states in which they operate.

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Administration of federal income tax

August 31st, 2009

The Internal Revenue Service (IRS), which administers the income tax, is part of the U.S. Department of Treasury. Adapting to changes in technology to achieve the most efficient processing of information is a major challenge for the IRS. For many years the IRS was organized on a geographical basis, but in 1998 it was reorganized into four functional divisions differentiated by type of taxpayer.

For corporate and individual taxpayers that report on a calendar-year basis, annual tax returns are due on or before March 15 and April 15, respectively, following the close of the calendar year. Providing that the tax due is paid, time extensions for filing returns may be obtained. Although the closing dates for the quarters differ, both individuals and corporations are subject to the payment of estimated tax in quarterly installments. Taxpayers who fail to file tax returns or fail to pay taxes are subject to monetary penalties, fines, and possibly prison sentences.

Extention of income tax to the state level

Wisconsin was the first state to adopt an income tax in 1911. Massachusetts and New York soon followed by adopting income taxes when faced with problems related to World War I. Most other states adopted the income tax as a response to revenue crises created by the Great Depression. » Read more: Administration of federal income tax

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Adoption and early implementation of federal income tax

August 29th, 2009

Until the Civil War, federal revenues came from relatively low tariff rates imposed on a broad base of imported goods and from excise taxes. However, tariffs and excise taxes could not support escalations in government spending caused by the Civil War. Drawing on the example of the British Parliament’s adoption of an income tax in 1799 to help finance the Napoleonic Wars, the U.S. Congress adopted the first federal income tax in 1861 to partially finance the Civil War. Legislators regarded the war-motivated income tax as an indirect tax because neither real nor personal properties were taxed directly. The constitutionality of the tax was not challenged, and it expired in 1872.

During the post-Civil War years, high tariffs, often established to protect selected industries from foreign competition, and excise taxes were the major sources of revenues. By the early 1890s, tax structure was a political issue, with debate centering on the equity of the tax burden. In 1894, with strong Democratic support, a modest income tax was adopted. The first $4000 of income was exempt from taxation, and the initial tax rate was 2 percent. The prevailing view was that this tax would apply to high-income taxpayers and corporations without extending to the wages and salaries of working people. » Read more: Adoption and early implementation of federal income tax

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