Taxes and Taxation
A tax is a contribution levied on persons, property, incomes, or business, for public purposes.
Some Uses for Taxes.—The National Government requires money to support the army and navy, to pay the salaries of government employes, to pay pensions, and to finance other activities carried on by the nation.
The State Governments require money for the expense of their officers, and to support their various institutions, schools, universities, asylums, and penitentiaries.
The counties require money for the building of bridges, the trial of criminal cases, the salaries of officers, the relief of the poor, etc.
Cities must pay for police and fire protection, care of streets, etc.
School districts contribute to the support of the public schools.
The money required for all these expenses is raised by taxes, licenses, fees, assessments, and fines.
State and Local Taxes.—The amount of tax paid by any individual to state and local governments depends upon the value of the property which he owns and the tax rate. In many places the adult male citizen pays a poll tax.
The tax levied on property is called a property tax.
The tax levied on persons is called a poll tax. This is sometimes called a capitation (by the head) tax.
Sometimes a man’s income is taxed. This is an income tax.
After the amount of money to be raised by tax is decided upon, a man, called the assessor, examines each piece of taxable personal property and real estate, and places a value upon it. This is taken as a basis for proportioning the tax among the property owners.
A tax collector is one who collects the taxes. He is sometimes paid a salary. Sometimes he gets only a percentage of the money he collects.
The treasurer receives and takes care of the money collected by the tax collector. He is paid a salary.
The Tax Rate.—Sometimes the rate is fixed by law or by vote of the citizens. More often the lump sum to be raised is named, and the assessor determines the rate.
When the assessor is to determine the rate, he proceeds in this way: First, he assesses each piece of property, usually not at its full market value. Then he determines the total value of all the property in his district. Next, he divides the total tax to be raised by the total value of the property in his district. The result is the rate of tax on the dollar.
Use of the Mill in Taxes.—When a tax is apportioned, it is usually found that if a few mills are paid on each dollar’s worth of property in the district, the aggregate amount is equal to the whole sum of tax needed. Consequently, we often hear of tax levies of so many mills on the dollar, as, 2 mills on the dollar, 5 mills on the dollar, etc.
The denomination of our money system called the mill has practically its only use in the levy of taxes.
Assessors make use of a table like the one given on the following page. This table is based on a tax levy of 9 mills on the dollar.
The following tax rates are equivalent:
16 mills (on the dollar);
1.6%;
$1.60 (on each hundred dollars).
Explanation of Table. The second column shows the tax at nine mills on the dollar, for values of $1 to $30. [878] The fourth column shows the tax for values of $40 and multiples of ten, to $600. The sixth column shows the tax for values of $700 and multiples of one hundred, to $10,000.
Tax Table
| Prop- erty Value | Tax | Prop- erty Value | Tax | Prop- erty Value | Tax | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | 1 | $ | 0.009 | $ | 40 | $ | 0.36 | $ | 700 | $ | 6.30 |
| 2 | 0.018 | 50 | 0.45 | 800 | 7.20 | ||||||
| 3 | 0.027 | 60 | 0.54 | 900 | 8.10 | ||||||
| 4 | 0.036 | 70 | 0.63 | 1,000 | 9.00 | ||||||
| 5 | 0.045 | 80 | 0.72 | 2,000 | 18.00 | ||||||
| 6 | 0.054 | 90 | 0.81 | 3,000 | 27.00 | ||||||
| 7 | 0.063 | 100 | 0.90 | 4,000 | 36.00 | ||||||
| 8 | 0.072 | 200 | 1.80 | 5,000 | 45.00 | ||||||
| 9 | 0.081 | 300 | 2.70 | 6,000 | 54.00 | ||||||
| 10 | 0.09 | 400 | 3.60 | 7,000 | 63.00 | ||||||
| 20 | 0.18 | 500 | 4.50 | 8,000 | 72.00 | ||||||
| 30 | 0.27 | 600 | 5.40 | 9,000 | 81.00 | ||||||
The Amount of Tax.—To find the amount of tax to be paid by any property owner.
Rule.—Multiply the assessed value of the property by the tax rate.
Example: Taylor’s property is assessed at $3800. The rate is 24 mills.
| Solution: | $3800 | assessed valuation |
| .024 | tax rate in mills | |
| $91.20 | tax. |
Example: The town of Grant is to raise $4725 in tax. The property in the town has an assessed valuation of $395,140. What is the rate?
If on $395,140 a tax of $4725 is to be raised, on $1 as much tax must be raised as $395,140 is contained times in $4725, which is.0119+, or about $.0119. This would be called $0.012, or 12 mills on the dollar.
Example: Finch’s property is assessed at $5470. The tax rate is $1.95.
Solution:
| $1.95 | the rate per hundred dollars |
| 54.70 | the number of hundreds of dollars assessed value |
| $106.67 | the tax. |
Indirect Taxes are taxes placed upon goods by the national government, and collected before the goods are sold to the consumer.
The national government needs this money to pay:—
1. Interest on the public debt.
2. To support an army and navy, to build vessels, and keep up arsenals and forts.
3. To pay pensions.
4. To improve the rivers and harbors.
5. To pay the salaries of its officers; as, the president, cabinet officers, judges, ministers to foreign countries, congressmen, etc.
Indirect taxes are of two kinds, customs or duties, and excises or internal revenue.
Excises or internal revenue are taxes levied on certain domestic goods, as, manufactured tobacco, liquors, and the like.
Indirect taxes levied by the government on imported goods or merchandise are called duties or customs.
A custom house is a government office where duties are collected and where vessels are entered and cleared. Nearly every seaport of consequence has a custom house. So also have important towns near the Canadian and Mexican boundaries.
Duties are of two kinds, specific and ad valorem.
A specific duty is one levied at a specified sum per yard, gallon, ton, etc.
An ad valorem duty is one levied at a certain percentage of the value of the goods, at the port of export.
Tare is an allowance made for the weight of bags, barrels, or cases, in which merchandise is shipped.
Leakage is an allowance made for loss of liquids from casks, barrels, etc., in shipping.
Breakage is an allowance made for the loss of liquids from bottles in shipping.
Example: Find the duty on 4 dozen bottles of cologne, allowing 4% for leakage and 3% for tare. The invoice value is 90 cents a bottle and the duty is 25% ad valorem and 20 cents specific. Find the total cost per bottle.
Work and Explanation:
| Leakage and tare are 4% + 3% = 7%. | ||||||||||||
| 4 dozen bottles = 48 bottles. | ||||||||||||
| The invoice value of 48 bottles is 48 × 90 cents | = | $ | 43 | .20 | ||||||||
| Tare and leakage are 7% of $43.20 | = | 3 | .024 | |||||||||
| Value on which duty is paid | $ | 40 | .176 | |||||||||
| Ad valorem duty is 25% of $40.176 | = | $ | 10 | .044 | ||||||||
| Specific duty is 48 × 20 cents | = | 9 | .60 | |||||||||
| Total duty | $ | 19 | .644 | |||||||||
| The total cost is | ||||||||||||
| Invoice value | $ | 43 | .20 | |||||||||
| Ad valorem duty | 10 | .04 | ||||||||||
| Specific duty | 9 | .60 | ||||||||||
| $ | 62 | .84 | ||||||||||
The total cost per bottle is 1⁄48 of $62.84, or $1.31-.