Ability to pay
The principle that those with greater financial resources should pay a larger share of their income in taxes than less-wealthy individuals.
Adjusted gross income (AGI)
The amount of income subject to tax before subtracting deductions and personal exemptions. Federal AGI is typically the starting point for state income tax calculations.
Adjustments
Income tax breaks that reduce the amount of income subject to tax.
Apportionment formula
The formula that a state applies to the profits of a multi-state corporation to determine what portion can be taxed by that state.
Assessed value
The value of a property for tax purposes, as determined by property tax officials.
Benefits principle
A principle of taxation in which taxes are based on the benefits received from the public services funded by the tax.
Capital gain
The profit that results when assets like stocks, bonds, and real estate increase in value. Capital gains are typically subject to income tax only when the gain is “realized,” i.e. when the asset is sold.
Circuit breaker
A targeted property tax credit for homeowners and renters whose property taxes are very high relative to their incomes.
Credit
A dollar amount subtracted from tax liability. (By contrast, deductions and exemptions are subtracted from taxable income.)
Combined reporting
A requirement that a multi-state corporation and its subsidiaries file income taxes as a single entity.
Excise tax
Sales taxes that apply to specific products such as alcohol, cigarettes and gasoline, usually hidden within the price of the product.
Exemptions
A special rule that provides a tax shelter for some economic activity. Exemptions reduce the amount of taxes owed.
Flat tax
A tax with a single rate applied to all taxable income.
Graduated rate income tax
A tax structure with a series of income brackets, where everyone pays the same low rate on their first dollars of income, then progressively higher rates only on the portions of income that exceed each bracket threshold.
Gross receipts tax (GRT)
A tax on the total gross revenues of a company, regardless of their source. A gross receipts tax is similar to a sales tax, but it is levied on the seller of goods or services rather than the consumer, and has fewer exemptions.
Homestead exemption
A tax break for homeowners that shelters a portion of the home’s value from tax.
Horizontal equity
The measure of tax fairness that describes how a tax system treats taxpayers in similar financial circumstances.
Intangible property
Property that has no physical substance, but may have financial value. Examples of intangible property include stocks, bonds, and retirement plans.
Itemized deduction
Deductions available as an alternative to the basic standard deduction in order to consider large or unusual personal expenditures that affect a taxpayer’s ability to pay, typically including charitable contributions, mortgage interest, property taxes, and very large medical expenses.
Marginal rate
Income tax rates that apply only to the taxable income over the amount where the tax bracket starts.
Nexus
The minimum level of economic activity that a business must have in a state or locality in order for its activities to be taxable there.
Nominal tax rate
The legal rate that is multiplied by the tax base to yield the amount of tax liability.
Non-refundable tax credit
A tax credit whose value is limited to the amount of a taxpayer’s pre-credit liability; it can bring the tax liability down to zero but no lower.
Pass-through entity
A businesses whose profits pass through to its owners and are taxed as personal income; examples are S corporations (which have a limited number of owners), partnerships (such as many law firms, accounting firms, etc.), and sole proprietorships.
Personal exemption
A set dollar exemption for each person listed in an income tax return.
Personal property
Moveable assets like cars, business equipment, and inventory that are sometimes subject to property tax, as opposed to “real property” which refers to land and buildings.
Progressive, progressivity
A progressive tax is one in which upper-income families pay more of their income in tax than do those with lower incomes.
Proportional
A proportional tax is one in which all taxpayers pay the same share of their income in tax.
Pyramiding
Pyramiding, also known as cascading, occurs when sales tax is applied first to a good or service purchased by a business and then, effectively, a second time when the business incorporates that cost into the selling price of a good or service that is also subject to sales tax.
Rainy day fund
A reserved amount of money that a government can use to maintain operations when regular revenue is temporarily disrupted or decreased.
Real property
Land and buildings potentially subject to property tax, as opposed to “personal property” which refers to moveable assets.
Refundable tax credit
A credit that can be claimed in the form of a refund if its value is greater than tax liability. payable whether or not a taxpayer owes any tax.
Regressive, regressivity
A regressive tax requires low- and middle-income families to pay more of their income in tax than wealthier families must pay.
Split roll
A property tax system that applies different tax rates, or different assessment ratios, to different categories of properties. Split roll systems often favor residential property over commercial property.
Stability
A measure of tax adequacy that describes whether a tax grows at a predictable pace.
Standard deduction
An amount subtracted from adjusted gross income to reduce tax liability in lieu of itemized deductions.
TABOR (Taxpayer Bill of Rights)
A Colorado constitutional amendment that limits the annual growth in state revenues and expenditures to the sum of the inflation rate and the percentage change in the state’s population. The result is a decline in actual spending capacity.
Taxable income
The amount of income after all adjustments, exemptions, and deductions, to which the tax rate is applied.
Tax and expenditure limits (TELs)
A formula written into state law or into a state constitution that caps revenue and spending of a state and locality.
Tax expenditure
A tax break targeted to a particular group of individuals or businesses – so called because it has a comparable impact to a direct government spending program giving cash grants to these groups.
Use tax
A sales tax which applies to goods that are purchased from out-of-state retailers.
User fee
A fee charged by government for a specific service rendered to a specific taxpayer by the government. The payment is usually made at the same time that the service is rendered, and the amount of the fee is usually related to the cost of the good or service provided.
Vertical equity
The measure of tax fairness that describes how a tax system treats people at different income levels. When we describe a tax as regressive, proportional or progressive, we’re making a statement about vertical equity.
