Page 190 - Business Principles and Management

Chapter 7 • Legal Aspects of Business

FIGURE 7-5 The Most Common Business Taxes

Assessments Payroll taxes
Corporation taxes Property tax — intangible property
Federal excise tax Property tax — merchandise
Federal social security tax Property tax — personal
Federal income tax Property tax — real estate
Franchise tax Sales tax
Gasoline tax Severance tax
Licenses State income tax
Local income tax State unemployment tax
Motor truck licenses and taxes State workers’ insurance tax

taxes, and property taxes. Figure 7-5 gives examples of the types of taxes that a
business operating in only one state may be required to pay.

INCOME TAX
The federal government and most state governments use the income tax to raise
revenues. An income tax is a tax on the profits of businesses and the earnings
of individuals. For individuals, the tax is based on salaries and other income
earned after certain deductions. For businesses, an income tax usually applies
to net profits (receipts less expenses).
The income tax is the largest source of revenue for the federal government.
Individuals pay about 70 percent of the total federal income taxes collected, and
businesses pay nearly all of the remaining 30 percent. Businesses share the cost of
collecting individual income taxes. Every business is required to withhold income
taxes from employees’ earnings and turn them over to the government. Thus,
business performs an important tax service for government. Individuals and busi-
nesses pay lower rates in the United States than in most other developed nations,
as shown in Figure 7-6.

SALES TAX

A sales tax is a tax levied on the retail price of goods and services at the time
they are sold. A general sales tax usually applies to all goods or services sold
by retailers. However, when a sales tax applies only to selected goods or ser-
vices, such as cigarettes and gasoline, it is called an excise tax.
Sales taxes are the main source of revenue for most states and some cities
and counties. Although state governments do not all administer sales taxes in
the same way, in most cases the retail business collects the tax from customers
and turns this tax over to the state government. A business must be familiar
with the sales tax law of the state in which it operates so that it can collect
and report the tax properly.
From time to time, federal officials have considered charging a national sales
tax. State officials, however, strongly oppose a national sales tax because the state
tax is their primary source of revenue. The question as to how and whether to tax
Internet sales is also under debate between the states and the federal government.

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