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What is a Tax Jurisdiction?

By R. Kimball
Updated May 16, 2024
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A tax jurisdiction is a city, state, country, or other government that levies taxes within its limits. These taxes may be levied based upon residency, income received, or some other scheme within the physical limits of the jurisdiction. Each jurisdiction may have a different manner on which to base its taxes as well as its own manner for calculating taxes. Jurisdictions with limited or no taxes are considered tax havens.

Beginning at a federal level, taxes may be charged to individuals or businesses within the tax jurisdiction. Most federal jurisdictions base their taxes upon income gained by their citizens, residents, and others doing business within the jurisdiction. The federal government determines the manner in which these taxes are calculated. Some federal governments have a complicated tax structure that requires those subject to taxation to file a tax return each year, whereas other governments manage a simple process of monthly payments.

States might implement income taxes or sales taxes or both. Each state may determine the taxes it will enforce upon the individuals and businesses within its tax jurisdiction. States that charge their residents an income tax usually require an annual filing due at the same time as a federal filing. Provinces or states that charge sales tax collect sales tax from vendors on a monthly basis or from others on a transactional basis.

Individual cities may also be a tax jurisdiction. The city normally charges a tax for certain services provided by the city as a function of its government. These taxes may be charged on a transactional basis with each covered transaction or on some other regular basis. Some cities tax people traveling within the boundaries of the city on specific transactions such as rental cars or airline tickets. The revenues gained from these taxes might be used for special projects to enhance the city without increasing the tax on the city’s residents.

Other divisions within a state or city are made for governance and tax purposes. A school district is a form of tax jurisdiction. The school district may charge homeowners within its territory a set annual tax. This annual tax is then used to maintain the education system within the school district. Sometimes a water district may be created in order to maintain the area's water supply.

Counties within a province or state may also levy taxes. Many times these counties levy a sales tax of some form on each sales transaction within the county. These taxes are usually collected by the vendor at the time of the transaction along with any city or state taxes that apply to the same transaction. The vendor is then responsible for payment of each of the different taxes to the various tax jurisdictions based upon the laws regulating each of the types of taxes.

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