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What is a Tax Base?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 September 2014
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    2003-2014
    Conjecture Corporation
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Tax bases, as they relate to communities, have to do with the total assessed value of all income and property that is present within a given community. Determining the value helps make it possible to calculate taxes that are due on the resources of the community, and thus create the primary revenue stream for the function of the government and associated social services. A proper assessment of the existing tax base means there will be funds for services such as the maintenance of streets and roads, and other benefits that governments routinely provide to citizens.

Taxable activities that go into determining the base figure for taxation are varied. They may include the current market value of properties, such as office buildings, retail spaces, and housing facilities. Taxable activities may also include the sales activity that takes place within the jurisdiction, taking into consideration the value of the goods and services sold. The tax base also includes figures that relate to earned income, interest income, and profits from investments that are relevant to the overall worth of the community.

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Once all relevant assets are taken into consideration, it is possible to use several different formulas to determine the tax rate that will be applied in various situations. The tax base provides the background to determine sales tax that will be collected, property taxes that will apply, and local income taxes that can be assessed on earned income. The idea behind understanding the tax base before setting tax levels is to ensure that there is not an unreasonable burden placed on persons who work in or own property in the jurisdiction.

Because the tax base of a community can change over time, the process of evaluating the value of all relevant assets takes place on an ongoing basis. Many jurisdictions take a second look at the status of the tax base on at least an annual base, with many communities choosing to engage in the process on a semiannual or even quarterly basis. By doing so, this makes it possible to make any adjustments necessary for upcoming tax periods.

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