Thursday, January 09, 2003

An email I just got says the following....

How Taxes Work

The author of the following article is: Thomas L. Davies, LL.M., M.P.A.,
C.P.A., Professor and Chairman of the University of South Dakota School of
Business, Accounting and Business Law Division.
(In South Dakota, it is obviously too cold to play outside. You don't see
stuff like this coming from any warm-weather area educator.)

You might like this....

This is a VERY simple way to understand the tax laws. Read on - it does
make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner. The bill for all ten comes to $100. If they
paid their bill the way we pay our taxes, it would go something like this:

The first four men -- the poorest -- would pay nothing; the fifth would pay
$1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18
and the tenth man -- the richest -- would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant
every day and seemed quite happy with the arrangement -- until one day,
the owner threw them a curve (in tax language, a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the
cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay our taxes. So the
first four men were unaffected. They would still eat for free. But what
about the other six -- the paying customers? How could they divvy up the
$20 windfall so that everyone would get his "fair share?"

The six men realized that $20 divided by six is $3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth
man would end up being PAID to eat their meal. So the restaurant owner
suggested that it would be fair to reduce each man's bill by roughly the
same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid
$5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a
bill of $52 instead of his earlier $59. Each of the six was better off than
before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man, "but he,"
pointing to the tenth, "got $7!" "Yeah, that's right," exclaimed the fifth
man, "I only saved a dollar,'s unfair that he got seven times
more than me!"

"That's true!" shouted the seventh man, "why should he get $7 back when I
got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the
first four men in unison, "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't
show up for dinner, so the nine sat down and ate without him. But when it
came time to pay the bill, they discovered, a little late, what was very
important. They were FIFTY-TWO DOLLARS short of paying the bill!

Imagine that!

And that, boys and girls, journalists and college instructors, is how the
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction.
Tax them too much, attack them for being wealthy,
and they just may not show up at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities
cannot seem to grasp this rather straight-forward logic!

T. Davies
Professor of Accounting & Chair,
Division of Accounting and Business Law
The University of South Dakota
School of Business
414 E. Clark Street
Vermillion, SD 57069

Subject: Taxes

When NASA first started sending up astronauts, they quickly discovered
that ball-point pens would not work in 0 gravity. To combat this problem,
NASA scientists spent a decade and $12 million developing a pen that writes
in zero gravity, upside down, underwater, on almost any surface including
glass and at temperatures ranging from below freezing to over 300 C.

The Russians used a pencil.

Enjoy paying your taxes.

Strangest state tax laws

You'll pay taxes on illegal drugs in 'Bama and on Pepsi in Chicago. But wait, there's more.
January 7, 2003: 1:26 PM EST
By Annelena Lobb, CNN/Money Staff Writer

NEW YORK (CNN/Money) � Like it or not, taxes are a fact of life. From paycheck deductions to the added cost of eating out, it's the price we pay for social programs, highway maintenance and public schools.

Not all taxes, however, are rooted in common sense. Some, in fact, are downright bizarre.

In certain parts of the country, you'll pay the government special taxes for takeout food, for buying a deck of cards, or even for possessing illegal drugs. And with state budgets becoming increasingly pinched, experts say miscellaneous taxes are on the rise -- from a new "jock tax" in Cincinnati to a 200 percent increase in sales tax on liquor in Alaska.

"Many of these taxes are desperate measures states [undertook] to raise funds," said John Barry, chief economist at the Tax Foundation, a Washington, D.C.-based nonprofit.

Here are some of the most peculiar taxes around.

Illegal drug tax
So you pay a tax and get prosecuted? Well, yes. Seventeen states, including Alabama and North Carolina, tax people involved in illegal drug transactions, from use to possession to distribution and sales. The rate varies according to the substance you (well, not you, of course) have, said David Hoffman, a Tax Foundation economist who studies miscellaneous taxes.

In Alabama, marijuana gets taxed at $3.50 a gram. (Other tax values are determined from the marijuana tax values -- if a gram of cocaine, for example, costs 10 times what a gram of marijuana costs, then cocaine would be taxed at 10 times the tax for marijuana, or $35 a gram. Confusing, but true.)

In North Carolina, the rules are stranger still. Within 48 hours of obtaining a fixed quantity of illegal drugs or alcohol, buyers must purchase stamps from the state and affix them to the controlled substance. If the person gets busted without stamps, they still must pay the tax.

Those who purchase the stamps need not provide personal identification information to the Department of Revenue. Still, there aren't lines outside the door.

Since the law was enacted in 1990, just 63 people have purchased drug stamps -- many of whom are believed to be collectors. Meanwhile, the state has assessed some 60,000 fines for failure to display the stamps, collecting nearly $68 million in revenue to date.

Oh, by the way, according to the Unauthorized Substances Tax Web site, purchasing stamps doesn't give you legal possession of the drugs. It only fulfills your "civil unauthorized substance tax obligation." Stamps or no stamps, you're still breaking the law.

Jock tax
Cities and states also levy taxes on the income earned by athletes, entertainers (OK, not just jocks) and their various entourages. Any money earned while playing in that particular city or state gets taxed. California levied the first jock tax in 1991, on athletes from Chicago, right after the Chicago Bulls beat the L.A. Lakers. (Chicago quickly responded in kind.)

Cincinnati just passed a jock tax two weeks ago of 2.1 percent, intended to help close a $35 million city deficit, Hoffman said.

"If the Dallas Cowboys play the Bengals in Cinci, and they're in town Friday through Saturday, then each player, as well as everyone else traveling with their team, will be taxed on three days salary � and the Cowboys are from a state with no income tax," Hoffman said.

Today, every state with a professional sports team and an income tax has a jock tax.

Playing card tax
If you want a deck of cards in the state of Alabama, be prepared to shell out an extra dime. The state government has levied a 10-cent tax on the purchase of a playing deck that contains "no more than 54 cards". If you object to this, get your playing cards in a different state, or buy a deck with an extra joker.

Wagering tax
Speaking of cards � and chips � and dollar signs, most people know they'll have to report gambling winnings and pay the piper on April 15. But you might also pay a tax just for entering a casino, even if you don't gamble. Consider it a cover charge.

The "wagering tax" typically is levied on the state level, in states like Pennsylvania, West Virginia and Illinois, which all have legalized gambling. It's initially levied on casino or track owners, Hoffman said. But they pass it along to consumers in admissions prices. Sometimes consumers pay the tax directly: in Illinois, for example, the gross receipts of riverboat casinos are taxed, and so are individual admissions.

Takeout tax
Would you like fries with that? The City of Chicago has levied a 0.5 percent charge on all carryout food, technically called the "anti-litter" tax. This applies to everything from your Happy Meal to a vendor-sold hot dog. Washington, D.C., has the takeout tax as well.

Fountain soda drink tax
This one also hails from Chicago. If you buy a "fountain soda drink" � your basic Coke or Pepsi, as long as it's not from a can or bottle � you'll pay a flat rate of 9 percent on it to the city of Chicago.

Amusement tax
Ever wondered about the extra tax you pay on stadium seats? That's the amusement tax, often levied at both city and state levels. Most states, including Massachusetts, Virginia and Maryland, and cities like New Orleans, have amusement taxes on tickets sold at any venue with more than 750 to 1,000 seats.

Amusing, isn't it?