Local Tax

Local Tax

A local tax is a tax assessed and collected by a local authority such as a state, county or municipality. A local tax is generally collected in the form of property taxes and is used to finance a wide range of civic services, from garbage collection to sewer maintenance. The amount of local taxes can vary considerably from one jurisdiction to another.

Local tax is also called municipal tax.

Break down the local tax

Through the American Constitution, the federal government has the power and the states have the right to impose taxes on their residents. State taxes are collected to finance local government projects, such as improving water and sewage, law enforcement and fire services, education and health services, construction of roads and highways, civil servants and other services that benefit the community as a whole.

State, county and municipal taxes are called local taxes because they are collected at lower levels than the federal government. (Some publications do not classify national taxes as local taxes). Unlike federal taxes, the benefits from local taxes are generally visible at the community level. Municipalities face a constant balance in collecting local taxes, as raising taxes can lead to a “taxpayer revolt”, while low levels of taxation can lead to reduced essential services .

Personal income tax, corporate income tax, inheritance tax, fuel tax and sales tax are some of the common types of tax that many states impose, but the biggest example of local tax is the property tax. States that impose local withholding tax on employee wages. While most states impose a local income tax as a payroll tax, some collect it as a percentage of state income tax. In the United States, 14 states levy a local income tax, including New York, Pennsylvania, Ohio, Maryland, New Jersey and Michigan. Ohio and Pennsylvania also impose special local income taxes known as school district taxes to help finance the operating costs of education. Thus, an employee may find that the taxes are deducted from his pay check at the federal, state and county levels.

Sales tax is an established regressive tax imposed on residents of a state or municipal region on goods and services sold. No matter how much money residents make, everyone pays the same percentage of tax. However, not all local regions have sales tax. In addition to the sales tax, many states also have a usage tax, which is applied to major items purchased outside the state, such as automobiles.

A state establishes guidelines under which local governments can impose property taxes. The amount of property tax payable is calculated on the total value of the property or a certain percentage of the value. Property tax rates and the types of property taxed vary by jurisdiction.

Municipal authorities generally issue bonds to finance certain investment projects in the community. Investors who buy these municipal bonds lend money to the government, which promises to repay the principal investment on a predetermined date. Lenders periodically receive interest on the bond until the bond matures. To repay the debt, that is to say, to fulfill the obligations of interest payment and repayment of the principal of the obligations, a municipal administration may issue a new tax or increase the existing local taxes.

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