An Overview of U.S. Taxation
By Aaron N. Wise, Attorney at Law © 2009
This Chapter discusses by way of overview the U.S. tax system and some of the important tax considerations for investors, exporters, licensors etc. to consider.
The United States is a federal republic; that is to say, the national government, each state, and the local government within each state makes its own laws and has its own courts. Therefore, each government has its own tax administration, its own tax laws, and its own tax forms. At the federal level, there is income tax, including corporate and personal income tax, capital gains tax, income tax on dividends, interest and royalties, and on partnership profits; and employee payroll taxes. At the state level, there are, in most states, similar taxes as the above federal ones; and sales and use taxes. Some counties and cities have their own tax regimes, e.g., income and business taxes and property taxes. New York City is one.
The more important American taxes and the authorities which impose them are shown in Annex 1 to this Chapter. The U.S. federal income tax rates on corporations are contained in Annex 2 to this Chapter.
The USA enters into separate international agreements with many countries for the purpose of avoiding double taxation and preventing fiscal evasion with respect to taxes on income (they are often called “income tax treaties”). Some of these treaties are rather complicated, one example being the rather intricate provisions on activities which can cause a foreign resident company or individual to have a "permanent establishment" in the USA and those which will not cause such a result. Those income tax treaties apply to U.S. federal income tax (and the income taxes of the other treaty country). The provisions of the relevant treaty or treaties are often important tax planning tools and for determining what taxes will be due.
Also, before entering into a venture in the USA, a foreign exporter or investor should determine which taxes may be due to states and municipalities. These are not covered by income tax treaties. Because of the USA’s size and the diversity of local laws, the total amount of taxes may differ significantly from one location to another.