Taxation in the United States is a complicated process that is in constant confinement by both the state and federal governments. Understanding the process can be challenging to say the least, and especially when there are so many facets and components of the taxation process to deal with. Understanding the process and procedures involved, and having the basic knowledge as well as the support team to back it up—will go a long way in getting you through all of the hurdles at tax-season time.


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Taxation in the United States is a tremendously complicated process brought about by decades of continual refinements, additions and myriad other complexities. The state and federal governments constantly shift back and forth, attempting to remain balanced and in check, forever wary of each other's actions.

Trying to muddle through this vast web of taxation is tricky, and the best way to begin is to understand which bodies of government are responsible for levying certain taxes, and what products, properties, or services these taxes are actually imposed upon. Income tax, property tax, and excise tax are the three main types of taxes imposed in the United States. These taxes are controlled and imposed by the state, local, regional, and federal governments.

States are given the power to levy taxes within their borders as long as the tax is fair and reasonable, doesn't discriminate against any group or individuals, and doesn't infringe on any of the federal government's tax powers. This includes the ability to grant taxation powers to their counties, municipalities, regions, and other local governments.

In New York, for example, a combination of all three taxes is levied by the State, but the property tax is imposed by local government with the State's approval. Many states choose to levy a combination of all the taxes, but the largest tax imposed by the state is usually the property tax; this is collected on any property owned by an individual or business.

Popular reasons for taxes imposed on the local or regional level include municipal improvement in parks or schools and payment for police, fire departments, local roads, and other services. Additional local governmental entities, such as independent school districts, may also have taxation power.

Additionally, states are usually responsible for excise taxes, which are levied directly on products, merchandise, property transfers, or even a company's services. The most well-known excise tax is the sales tax. Other major excise taxes include those on fuel, tobacco, and alcohol.

The federal government was originally supported by tariffs levied on imported goods, but this has changed over time. Today, the major form of revenue for the federal government now lies in corporate and individual income taxes; tariffs on imports play only a minor role. Via the federal government, income and payroll taxes are automatically withheld from paychecks to individuals and businesses.

Income tax is imposed on any income received by a business or individual. Income taxes include payroll taxes, like those that go towards social security and unemployment insurance. The federal government can also impose import excise taxes. This is in direct contrast to the state, who cannot levy any import excise taxes, even those that directly affect them. Like the state, however, the federal government reserves the power to levy excise taxes on products such as fuel, telephone use, tires, tobacco products, and alcohol.
Because the tax system is so multi-layered and complex, learning about its processes and procedures can be exhausting and overwhelming. However, arming yourself with tools like basic knowledge, a good attitude, and even a session with a tax specialist can go a long way towards alleviating your frustration.