Tax jurisdictions are cities, states, or countries that collect taxes based on residency, income, or other patterns. They have different ways of calculating taxes, and some are considered tax havens. Federal, state, and city governments can charge taxes, as well as school and water districts. Counties can also levy sales taxes on transactions. Sellers are responsible for paying taxes to each jurisdiction.
A tax jurisdiction is a city, state, country, or other government that collects taxes within its limits. These taxes may be levied based on residency, income received, or some other pattern within the physical limits of the jurisdiction. Each jurisdiction may have a different way in which to base its taxes, as well as its own way of calculating taxes. Jurisdictions with limited or no taxes are considered tax havens.
Starting at the federal level, taxes can be charged to individuals or businesses within the taxing jurisdiction. Most federal jurisdictions base their taxes on the income earned by their citizens, residents, and others who conduct business within the jurisdiction. The federal government determines how these taxes are calculated. Some federal governments have a complicated tax structure that requires taxpayers to file a tax return each year, while other governments operate a simple process of monthly payments.
States may levy income taxes, sales taxes, or both. Each state can determine the taxes it will levy on individuals and businesses within its tax jurisdiction. States that charge their residents income tax usually require an annual filing due at the same time as a federal filing. Sales tax provinces or states collect sales tax from suppliers on a monthly basis or from others on a transactional basis.
Individual cities can also be a tax jurisdiction. The city normally charges a fee for certain services provided by the city as a function of its government. These fees may be charged on a transactional basis with each transaction covered or on some other regular basis. Some cities tax people traveling within the city limits on specific transactions such as rental cars or airline tickets. The revenue obtained from these taxes could be used for special projects to improve the city without raising the tax on city residents.
Other divisions within a state or city are made for government and taxation purposes. A school district is a form of tax jurisdiction. The school district may charge homeowners in its territory a flat annual fee. This annual fee is then used to maintain the education system within the school district. Sometimes a water district may be created to maintain the area’s water supply.
Counties within a province or state can also levy taxes. Many times these counties levy a sales tax of some form on every sales transaction within the county. These taxes are typically collected by the seller at the time of the transaction along with any city or state taxes that apply to the same transaction. The seller is then responsible for paying each of the various taxes to the various tax jurisdictions under the laws governing each of the types of taxes.
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