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The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP. The United States had the seventh-lowest tax revenue-to-GDP ratio among OECD countries in 2020, with a higher ratio than Mexico, Colombia, Chile, Ireland, Costa Rica, and Turkey.
A limited liability company is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation under state law; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase.
In addition to federal income tax collected by the United States, most individual U.S. states collect a state income tax. Some local governments also impose an income tax, often based on state income tax calculations. Forty-two states and many localities in the United States impose an income tax on individuals. Eight states impose no state income tax, and a ninth, New Hampshire, imposes an individual income tax on dividends and interest income but not other forms of income. Forty-seven states and many localities impose a tax on the income of corporations.
The 1998 Internet Tax Freedom Act is a United States law authored by Representative Christopher Cox and Senator Ron Wyden, and signed into law as title XI of Pub. L. 105–277 (text)(PDF) on October 21, 1998 by President Bill Clinton in an effort to promote and preserve the commercial, educational, and informational potential of the Internet. The law bars federal, state and local governments from taxing Internet access and from imposing discriminatory Internet-only taxes such as bit taxes, bandwidth taxes, and email taxes. It also bars multiple taxes on electronic commerce.
Tax-free shopping (TFS) is the buying of goods in another country or state and obtaining a refund of the sales tax which has been collected by the retailer on those goods. The sales tax may be variously described as a sales tax, goods and services tax (GST), value added tax (VAT), or consumption tax.
A Nevada corporation is a corporation incorporated under Chapter 78 of the Nevada Revised Statutes of the U.S. state of Nevada. It is significant in United States corporate law. Nevada, like Delaware, is well known as a state that offers a corporate haven. Many major corporations are incorporated in Nevada, particularly corporations whose headquarters are located in California and other Western states.
Internet tax is a tax on Internet-based services. A number of jurisdictions have introduced an Internet tax and others are considering doing so mainly as a result of successful tax avoidance by multinational corporations that operate within the digital economy. Internet taxes prominently target companies including Facebook, Google, Amazon, Airbnb, Uber.
Foreign corporation is a term used in the United States to describe an existing corporation that conducts business in a state or jurisdiction other than where it was originally incorporated. The term applies both to domestic corporations that are incorporated in another state and to corporations that are incorporated in a nation other than the United States. All states require that foreign corporations register with the state before conducting business in the state.
Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% following the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.
Quill Corp. v. North Dakota, 504 U.S. 298 (1992), was a United States Supreme Court ruling, since overturned, concerning use tax. The decision effectively prevented states from collecting any sales tax from retail purchases made over the Internet or other e-Commerce route unless the seller had a physical presence in the state. The ruling was based on the Dormant Commerce Clause, preventing states from interfering with interstate commerce unless authorized by the United States Congress. The case resulted from an attempt by North Dakota seeking to collect sales tax on licensed computer software offered by the Quill Corporation, an office supply retailer with no North Dakota presence, that allowed users to place orders directly with Quill.
Wisconsin Department of Revenue v. William Wrigley Jr. Co., 505 U.S. 214 (1992), is a case decided by the United States Supreme Court regarding the application of state franchise taxes to out-of-state businesses.
Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes referred to as digital tax and/or a digital services tax, is gaining popularity across the globe.
Formulary apportionment, also known as unitary taxation, is a method of allocating profit earned by a corporation or corporate group to a particular tax jurisdiction in which the corporation or group has a taxable presence. It is an alternative to separate entity accounting, under which a branch or subsidiary within the jurisdiction is accounted for as a separate entity, requiring prices for transactions with other parts of the corporation or group to be assigned according to the arm's length standard commonly used in transfer pricing. In contrast, formulary apportionment attributes the corporation's total worldwide profit to each jurisdiction, based on factors such as the proportion of sales, assets or payroll in that jurisdiction.
In National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753 (1967), the Supreme Court ruled that a mail order reseller was not required to collect sales tax unless it had some physical contact with the state.
Amazon's tax behaviours have been investigated in China, Germany, Poland, Sweden, South Korea, France, Japan, Ireland, Singapore, Luxembourg, Italy, Spain, United Kingdom, multiple states in the United States, and Portugal. According to a report released by Fair Tax Mark in 2019, Amazon is the best actor of tax avoidance, having paid a 12% effective tax rate between 2010-2018, in contrast with 35% corporate tax rate in the US during the same period. Amazon countered that it had an 24% effective tax rate during the same period.
The Main Street Fairness Act was a bill introduced in the United States House of Representatives to "promote simplification and fairness in the administration and collection of sales and use taxes, and for other purposes." Specifically, the Main Street Fairness Act would have allowed state governments to require out-of-state retailers to collect and remit sales tax on purchases shipped to residents of those states. The Main Street Fairness Act was introduced by William Delahunt, a Democrat from Massachusetts, on June 30, 2010 and the bill expired at the end of the 111th Congress without being enacted.
The Marketplace Fairness Act is proposed legislation pending in the United States Congress that would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state. Identical versions were introduced into both the United States House of Representatives and the United States Senate during the 113th United States Congress. During the previous, 112th Congress, a bill was considered but expired without enactment.
Direct Marketing Association v. Brohl, 575 U.S. 1 (2015), was a United States Supreme Court case in which the Court held that a lawsuit by the Direct Marketing Association trade group about a Colorado law regarding reporting the state's tax requirements to customers and to the Colorado Department of Revenue is not barred by the Tax Injunction Act. While the case was reheard and found in favor of Colorado, the concurrence of Justice Anthony Kennedy provided a means for states to bring a challenge the ruling of Quill Corp. v. North Dakota, which has prevented states from collecting taxes from out-of-state vendors.
South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), was a United States Supreme Court case that held by a 5–4 majority that states may charge tax on purchases made from out-of-state sellers even if the seller does not have a physical presence in the taxing state. The decision overturned Quill Corp. v. North Dakota (1992), which had held that the Dormant Commerce Clause barred states from compelling retailers to collect sales or use taxes in connection with mail order or Internet sales made to their residents unless those retailers have a physical presence in the taxing state.
References
- ↑ "Franchise Tax" (PDF). Iowa Legislative Fiscal Bureau. October 28, 1994.
- 1 2 "Corporate Franchise Tax Vs. Income Tax". smallbusiness.chron.com.
- 1 2 3 Baker Tilly, 2016 Midyear State and Local Tax Update. http://www.bakertilly.com/insights/midyear-state-and-local-tax-update-income-and-franchise-taxes/
- ↑ Journal of Accountancy, Navigating Nexus. http://www.journalofaccountancy.com/issues/2010/nov/20102904.html
- ↑ State of Delaware, Annual Report and Tax Information. https://corp.delaware.gov/frtax.shtml