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Now that we’ve finished taking up federal taxation in the United States of America – that is to say, now that we’ve finished discussing how the federal or central government of the country manages to generate an annual income, it’s time to talk about the methods by which we are taxed on a local level – in other words, we’re going to take up state and local Taxation in the US. But before anything else, it would be best to have a bit of an overview on state and local government taxation to understand how it could be different from federal taxation.

First and foremost, it has to be understood that each state government that governs the state that make up the United states of America has the complete authority to charge taxes on their citizens and any activities they deem taxable. This supposed complete authority – at least, the term “complete authority” – describing the powers of taxation that each state government is entitled to have is rather confusing however, considering that the authority each state has is limited by two major factors: geography, meaning of course that their powers of taxation will only be valid within their territory, and federal law, which means that the tax laws must in no way negate the tax laws of the federal government nor take on a power that is supposed to be that of the federal government’s alone. A good example of this concerned laws that affected trading or commerce between different states. Another example of the limitations of state taxation would be the prohibition from levying taxes that are based on the color of one’s skin, one’s gender, one’s faith, one’s original nationality or the status of one’s citizenship. This also means that a person’ right to vote (for a President, Vice-President, Senator or Representative in Congress) is not curtailed by his or her inability to pay his or her taxes.

Local governments have far more limited powers of taxation, and mostly their revenue is generated through real estate – that is to say, value-based property taxes. Of course, these particular taxes are supplemented by things such as sales taxes and use taxes.

To clarify once more, sales taxes are taxes that are levied on certain goods and services which are paid for immediately. That is to say, on top of the actual fee of the product or service, you also have to pay for the tax at the point of purchase. Sales taxes are imposed by most of the American states, counties and municipals (this shall be discussed more thoroughly later). Use taxes, on the other hand, is an excise tax which is imposed upon certain tangible personal property which, while in any other situation may be tax free, is bought for use, consumption or storage of goods in the state – and the actual place where the act of purchase was indulged in does not at all matter. That is to say, the most common example of things that are levied with a use tax are the purchases made during travel that require special courier services, mail order purchases or items bought online. The use tax is a United States tax, and the rates are similar to that of the sales tax – not to mention the fact that this tax is paid directly to the government that assessed this (this and the rates shall be discussed more thoroughly at another time).

That being said, there are other ways by which a state or local government generates revenue, and this includes fees for building permits (technically part of property taxation). Also, these very same fees may also include the operating costs and services of property like parks and schools. Then, there are taxes on income, fines for certain minor law violations (particularly traffic violations), gross receipts or gross payroll taxes, portion of sales taxes and the like. States impose a gas tax, or fuel tax which, while considered a kind of sales tax, although it is considered a separate tax by some because it has features that can be considered as a user fee. Practically all the states impose what we call a “sin tax” as well, which is essentially a tax on items that are considered negative by the community – the most common examples of which are tobacco products and liquor. Again, sin taxes, apart from generating the desired revenue for the area concerned, are also there to discourage certain behavior that the group as a whole finds undesirable.

All in all, the state government has the power to empower certain territories (within their own, of course) like school districts, counties and cities to impose taxes on residents. These more localized areas in turn have the ability to impose taxes as much as the state does, so long as they are within the boundaries of state law.

Needless to say, state and local taxation, while given some free reign that reflects the sensibilities of the local community, are still limited by the rules and laws of the federal tax system. There is also the very slight difference in terms of the apparent use of the revenue as, considering how much “closer to home” these governments and tax systems are, the results of taxation seem to be more obvious. That is to say, local services like the maintenance of public roads, the building and maintenance of things like community centers, parks and the like, as well as improvements with regards to services and the like the are affiliated with the local city, county or state are more readily observed than any changes that may have been generated by the revenue collected by the United States of America’s federal government. And the thing is, this may be one of the reasons why some people prefer to pay only the state and local taxes and find ways to evade the federal taxes – because, quite frankly, if you can’t see where your money goes and how you benefit from the money that you have to give up in favor of the community, it’s hard to find the motivation to actually pay. (To be continued in next article)