The tax base of a community is the total assessed value of income and property, used to calculate taxes owed and fund government services. It includes property value, sales activity, and earned income. Regular evaluations are necessary to adjust tax rates and avoid placing an unreasonable burden on citizens.
Tax bases, as they relate to communities, have to do with the total assessed value of all income and property that is present in a given community. Determining the value helps make it possible to calculate the taxes owed on community resources and thus create the primary revenue stream for the government function and associated social services. A proper assessment of the existing tax base means that there will be funds for services such as street and highway maintenance, and other benefits that governments routinely provide to citizens.
The taxable activities that enter into the determination of the base figure for taxes are varied. They can include the current market value of properties, such as office buildings, retail space, and homes. Taxable activities may also include sales activity that takes place within the jurisdiction, taking into account the value of the goods and services sold. The tax base also includes figures related to earned income, interest income, and investment earnings that are relevant to the overall value of the community.
Once all the relevant assets are taken into account, it is possible to use several different formulas to determine the tax rate to apply in various situations. The tax base provides the background for determining the sales tax to be collected, property taxes to be assessed, and local income taxes that may be assessed on earned income. The idea behind understanding the tax base before setting tax levels is to ensure that an unreasonable burden is not placed on people who work or own property in the jurisdiction.
Because a community’s tax base can change over time, the process of evaluating the value of all relevant assets is carried out on an ongoing basis. Many jurisdictions take a second look at the state of the tax base at least annually, and many communities choose to engage in the process on a semi-annual or even quarterly basis. By doing so, this makes it possible to make the necessary adjustments for upcoming tax periods.
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