The essence of US taxation
Basic taxes in the USA is three-tiered. Taxation operates at the federal, state, and local levels. Taxes are levied on income, wages, sales, property, dividends, imports, etc., as well as various fees.
In the US, there is a high degree of decentralization of government, so federal and state taxes are completely separate from each other. Each level has its own powers to levy taxes. The federal government has no right to interfere with the state tax system. Each state has its own tax system, which is different from the tax systems of other states. There may be several jurisdictions within a state that also levy taxes. For example, counties or cities may levy their own taxes in addition to state taxes. The US tax system is quite complex.
The United States has a principle of parallelism, so one income can be taxed both at the federal level and at the state or local level. Naturally, state taxes are substantially lower than the federal tax rate. Let’s take a closer look at some types.
Company income tax
At the end of 2017, the US tax reform changed the principle of taxation based on the company’s worldwide income to the “territorial principle of taxation”.
Among other things, the United States abandoned the progressive scale of income taxation, according to which the profits of companies were subject to taxation at rates up to 35%. Since 2018, a flat corporate income tax rate has been set at 21%.
State corporate tax rates typically range from 1% to 12%. Some states do not charge income tax.
Taxation of income of non-resident companies depends on ties with the US. As a rule, the level and degree of presence, the presence of an office and employees, and storage facilities are assessed. Certain income that is not related to a US source business, such as interest, dividends and royalties, is taxed on a gross basis at a rate of 30%. This is the so-called withholding tax. The United States has entered into tax treaties with over 50 countries to avoid double taxation of the same income and prevent tax evasion.
Sales taxes
The US does not have a consumption tax at the federal level, but most states and some municipalities do have sales taxes. They are usually set as a percentage of the retail selling price and can be up to 11%. Each state sets its own tax rate and rules on which purchases are taxed.
Property tax
There is no federal property tax in the United States of America, but most states levy property taxes on both commercial and residential property owners based on the value of the property. The tax is usually levied at the municipal or state level. Tax rates vary widely depending on the fiscal needs of the taxing jurisdiction. Personal property taxes are also imposed in a number of states, but usually only on cars.
Capital gains taxes
Federal capital gains tax rates can be 0%, 15%, 20% for assets held for less than 12 months. The application of the specific rate depends on how the tax return is filed, based on the family status of the individual filing the return. So, for example, for the declaration, which is filled out by individuals with marital status “single / single” and income from capital gains up to $38,600 per year, a 0% tax rate is applied, income from $38,600 to $425,800 per year – 15 %, income over 425,800 dollars per year – 20%, respectively. Capital gains on assets held for more than 1 year are taxed at the maximum federal tax rate of 20%. At the corporate level, the standard income tax rate of 21% applies.
Excises
An excise, or excise tax, is any duty on manufactured goods that is levied at the moment of manufacture rather than at sale. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.
The federal and state governments have imposed excise taxes on various goods. For example, federal and state excise taxes are levied on gasoline and diesel used for transportation. Excises are levied by the piece and do not differ in uniform rates.
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