Can someone explain double taxation?

[livendive 8]

It seems like I've heard many times over the years that one of the underlying tenets of our system includes a prohibition of double taxation. Have I simply heard wrong? Nothing jumps to mind as far as where I'd find such provisions in any official documents, so perhaps I've just been misinformed. But if not, can anyone explain the dance our governments go through to justify federal income tax, state income tax, state sales tax, federal excise taxes, etc? How can federal taxes on gasoline sales not be double taxation when the money being used to pay them has already been pared by federal income taxes?

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[rehmwa 2]

Don't forget inheritance taxation

Also states that consider a Federal IRS refund as taxable income for the following year.

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[billvon 3,111]

>includes a prohibition of double taxation.

There is no such prohibition AFAIK. There are plenty of examples of double taxation out there (i.e. income tax followed by sales tax) even some examples of triple taxation (i.e. income, sales, property tax.) You may be referring to the common reseller exemption, where if you are going to resell a product and collect sales tax on it, you do not need to pay sales tax to your OEM.

[JohnnyD 0]

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It seems like I've heard many times over the years that one of the underlying tenets of our system includes a prohibition of double taxation. Have I simply heard wrong? Nothing jumps to mind as far as where I'd find such provisions in any official documents, so perhaps I've just been misinformed. But if not, can anyone explain the dance our governments go through to justify federal income tax, state income tax, state sales tax, federal excise taxes, etc? How can federal taxes on gasoline sales not be double taxation when the money being used to pay them has already been pared by federal income taxes?

Blues,
Dave

The most common association to the doctrine of double taxation is corporate dividends.
The most common to me is payroll tax.

edit: The very long answer to your question would include something about the differentiation of tax. For example: gas tax is not an income tax. It is a variable tax based on usage. If you don't want to pay gas tax, don't drive. In theory, income tax (based on your income) should only be assessed at one level. Corporate, federal, or state. The idea of no double taxation is a basis of the framework for a lot of tax law, but there are some glaring departures from it.

[JohnnyD 0]

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Don't forget inheritance taxation

Also states that consider a Federal IRS refund as taxable income for the following year.

Federal refunds are not income at the federal or state level, they are simply returns of overpayments. State refunds are taxable as federal income if the taxpayer itemizes, in which case the taxpayer can deduct state income taxes paid.

[rehmwa 2]

Gotta disagree. Depends on the specific state's tax laws. Been in both types of states for this issue. I don't recall if it was Iowa, Virginia or Arizona, but one of them you could deduct the previous year's Federal tax payment (but if you got a refund you had to claim as additional state income).

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[happythoughts 0]

Simple. Because they can. The govt is a self-sustaining monopoly. They keep their little empires by taxes.

Ever seen one of those "temporary" taxes? Something like "temporary tax to pay for a road until 2007..." Then, it 2007, it is a new road?
Once the tax is in place, it rarely goes away.

[jdhill 0]

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Don't forget inheritance taxationdeath tax

There, fixed it for you.

J

All that is necessary for the triumph of evil is that good men do nothing. - Edmund Burke

[billvon 3,111]

>>Don't forget inheritance taxationdeath tax
>There, fixed it for you.

After being involved with a lot of funerals, I can say from experience that no one sends dead people tax bills. In fact, sending back a tax return saying "this taxpayer is now dead" will get them out of paying income taxes in the future!

[wmw999 2,586]

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Don't forget [strikeout]inheritance taxation[/strikeout]death tax

Nope. It's a tax on large inheritances. I've been involved with death when there wasn't a large inheritance. No tax. The closest was a fee for filing a will.

"Death tax" is a catch phrase that's pretty misleading. But it sounds cool.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[jdhill 0]

Even if it is on "large" inheritances, it is another way the governement takes money that is not theirs.

J

All that is necessary for the triumph of evil is that good men do nothing. - Edmund Burke

[JohnnyD 0]

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Gotta disagree. Depends on the specific state's tax laws. Been in both types of states for this issue. I don't recall if it was Iowa, Virginia or Arizona, but one of them you could deduct the previous year's Federal tax payment (but if you got a refund you had to claim as additional state income).

Federal refunds are not income. Tax is calculated based on taxable income. Witholdings and payments are either more than tax (refund due) or less than tax (tax due). A federal refund is simply a return of excess witholdings. It is not income.

[Ron 10]

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Federal refunds are not income. Tax is calculated based on taxable income. Witholdings and payments are either more than tax (refund due) or less than tax (tax due). A federal refund is simply a return of excess witholdings. It is not income.

I have seen Federal refunds taxed.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[wmw999 2,586]

"not theirs" is just a definition.

Some folks think that no taxes whatsoever is just right. Of course, how does the government operate, then?

I don't agree with all of it either. But it's a law. Work to fix it, work to enforce it. Kind of like speeding, or the death penalty. These things are "right" or "wrong" often by societal definition, and not because of any inherent qualities.

After all, most people in Scandinavia think they get very good value for their very high taxation rate. Different strokes for different folks, and all that. There are others who don't I'm sure.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[JohnnyD 0]

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I have seen Federal refunds taxed.

The interest portion of a refund (which is not nearly as common as a timely refund) is taxable.
Again, federal refunds are not taxable income.

[wmw999 2,586]

If a refund was exempted the previous year as money lost to tax, and then recouped in a refund, the exemption from the previous year would be rescinded.

That could be considered taxing it, but it would really be subjecting the money that had been exempted to the tax it was under in the first place.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[JohnnyD 0]

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If a refund was exempted the previous year as money lost to tax, and then recouped in a refund, the exemption from the previous year would be rescinded.

That could be considered taxing it, but it would really be subjecting the money that had been exempted to the tax it was under in the first place.

Wendy W.

In this case, yes. There could also be a number of other things added on as well such as interest due and possibly penalties if the offense was determined to be abusive.

I will amend to say that as a general rule, federal refunds are not income, however, it is possible to find yourself in a situation where the refund or a portion of it could become taxable income.

Isn't the tax code exciting?