A Quick Guide to Government Revenue Streams

Local governments and state governments are legally allowed to make their own tax laws. Each individual local and state government has the ability to impose taxes at their discretion. However, local governments must adhere to their state governments tax laws. For example, a local government cannot impose a sales tax that is not allowed according to their state governments tax laws. In addition, both state governments and local governments are under the federal tax jurisdiction.

While each local jurisdiction has the right to make their own tax laws, they cannot violate Federal tax laws. Each tax jurisdiction is also able to make determinations as to how tax dollars are spent, as long as those monies are spent for the overall good of citizens.

No local government can enact a tax that is deemed to be illegal according to the Federal or State government. If for example, a local government wanted to spend tax revenue in order to take part in activity that is deemed illegal by a governing body, they could not do so. In addition, they could not impose taxes that were deemed unfair, or would prevent business in their area. The Commerce Clause allows congress to overturn such tax laws. If for example, a state government tried to enact highway tolls that only applied to certain types of businesses, the Commerce Clause would disallow such a tax based on the tax being unfair.

On a local level, citizens sometimes have a say in how their local tax revenue is spent. School budgets are a good example of a taxpayers ability to influence how tax dollars are spent. If a school budget was proposed that raise property taxes, voters could vote no and disallow that increase in taxes for that purpose.

Property tax assessments can also be challenged in court because each taxpayer is entitled to due process. However, local governments and state governments do have the ability to make other determinations about how tax revenue is spent. For example, the governor may deny state aid to local governments that do not adhere to state policies.

Each jurisdiction has some power for determining the types of taxes imposed on citizens. In addition, the manner in which tax dollars are spent, can also be determined by each jurisdiction as long as they adhere to the Federal governments tax laws and theCommerce Clause, among others.