Learn More: Taxation

Tax is a complex area of the law that involves a variety of distinct elements. Taxation involves various levels of government involvement and regulation, from the federal government down to state and local governments. Government entities impose taxes in order to raise the revenue required to pay for government projects and programs. In addition, with the globalization of the economy, tax practitioners must consider potential taxation by foreign governments when advising individual and business clients.

The federal government and some states tax the transfer of wealth through estate and gift taxes. An estate tax, also known as a death tax, is imposed on the transfer of property from a deceased person to his or her heirs. For the 2008 tax year, up to $2 million is exempt from the federal estate tax. The federal gift tax applies to any transfer of property by gift. For 2008, there is an exemption of $12,000 so that there is no tax on any gift of less than $12,000.

Excise taxes can be imposed by federal, state or local authorities. The federal government alone imposes excise tax on over twenty different types of manufacturing, retail and miscellaneous transactions. Excise taxes cover a wide range of products and activities including diesel fuel, heavy trucks and trailers, sport fishing equipment, bows and arrows and firearms. An excise tax is imposed on manufacturers and producers of tires, gasoline, aviation fuel, coal and certain vaccines.

A taxpayer must pay income tax on his or her taxable income. A complex set of rules is applied to determine taxable income. Generally, taxable income is determined by calculating total income minus certain allowable adjustments, deductions and exemptions. Once taxable income is determined, progressive tax rates are applied to calculate the amount of tax due.

International tax rules are complex and may affect US citizens and residents that conduct business outside the United States and foreign citizens and nonresident aliens that conduct business within the United States. The United States has entered into tax treaties with a number of foreign countries. While the rules vary depending on the country and the type of income at issue, generally under these treaties, residents of foreign countries are taxed at reduced rates or are even exempt from US income tax on income from sources within the United States.

Property (ad valorem) taxes are taxes imposed on the owners of certain types of property. The tax is typically based on the value of that property. Most state and local governments impose an annual property tax on real estate based on the value of the subject property.

Sales and use taxes are generally imposed by state and local taxing authorities. A sales tax is collected at the time of sale to a consumer and is based on the cost of the item sold. A use tax is generally a substitute for a sales tax. If an item was not taxed at the time of sale, its use will be taxed when the item is used within the taxing jurisdiction.