Microeconomics - Taxes

p Types of business taxes . A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state . Among the many taxes charged by the government on business is the value added tax (VAT , also known as 'Goods and Services Tax (G .S .T , Sales Tax , Single Business Tax (SBT , or Turnover Tax . The goal of this tax is to apply the equivalent of a sales tax to every operation that creates value

The Michigan Single Business Tax . In

1975 , the Michigan legislature approved Public Act 228 , radically changing the state 's business tax environment . Titled the Single Business Tax (SBT ) Act , Public Act 228 replaced profit-based taxation with value-added taxation [1] . More specifically , the SBT replaced seven taxes : the state corporate income tax (the largest revenue generator , then levied at 7 .8 percent the financial institutions income tax the corporate franchise fee the savings and loan association fee the domestic insurance company privilege fee the local government property tax on inventories and the intangibles tax on business [2] . The fact that one tax replaced so many others gave impetus to the name Single Business Tax . The Michigan SBT is unique because it is the only currently levied VAT in the United States New Hampshire imposes both a corporate income tax (Business Profits Tax and a Business Enterprise Tax , which is a 0 .75 percent tax on compensation , interest , and dividends paid whose impact is similar to a SBT but they are not SBT s

Unique features of Michigan 's SBT . Compared to taxes levied on profits SBT is a completely different approach to raising tax revenue because it uses the value firms add to products as the tax base . The value a firm adds to a product is the sales price less the cost of materials used in production . This value added should act as a proxy for a firm 's activity within a specified jurisdiction , such as a state . In turn , business activity provides a good measure of the government services a firm consumes over the tax year . For this reason , the SBT as with other types of VATs are said to be levied on a services consumed ' or benefits received ' principle rather than an ability to pay (profits principle [3] . If sheet steel is imported by a machine manufacturer that manufacturer will pay the SBT on the purchase price , remitting that amount to the government . The manufacturer will then transform the steel into a machine , selling the machine for a higher price to a wholesale distributor . The manufacturer will collect the SBT on the higher price but will remit to the government only the excess related to the "value added (the price over the cost of the sheet steel . The wholesale distributor will then continue the process , charging the retail distributor the SBT on the entire price to the retailer , but remitting only the amount related to the distribution markup to the government The...