Glossary

Ad Valorem Tax—(Latin for “according to value”) A tax based on the value of real estate on personal property.

Average Tax Rate—The ratio of the amount of taxes paid to the tax base (taxable income or spending).

Business and Occupation Tax—A gross receipts tax imposed by the state which charges varying rates for different types of businesses. It is measured on the value of products, gross proceeds of sale or gross income of the business.

Estate Tax—A tax on the value of estates of people living in Washington at the time of their death, or non-residents who own property in Washington state. As of Jan. 1, 2009, the Washington state filing threshold differs from the federal filing threshold for completing the estate tax return.

Excise Tax—A tax on the production or sale of a good. Typical examples of excise taxes include taxes on alcohol, tobacco and gasoline.

Gross Income—An individual’s total personal income before taking taxes or deductions into account, or a company’s revenue minus the cost of goods sold.

Income Tax—A tax levied on the financial income of people, corporations or other legal entities. Washington state does not have an income tax.

Marginal Tax Rate—The tax rate that applies to the last dollar of the tax base (taxable income or spending), and is often applied to the change in one’s tax obligation as income rises.

Net Income—The amount of income after subtracting costs and expenses from total revenue.

Personal Property—Any property that can be moved from one location to another. Personal property includes machinery, equipment, furniture and supplies of businesses and farmers. Most personal property owned by individuals—household goods and personal effects—is not subject to property tax. However, if these items are used in business, property tax applies.

Profit—The positive gain from an investment or business operation after subtracting for all expenses. The opposite of loss.

Progressive Tax—A tax by which the tax rate increases as the taxable amount increases.

Property Tax—An ad valorem tax that an owner is required to pay on the value of the property being taxed.

Pyramiding—The imposition of a tax on a tax, typically with taxes that are imposed on goods or services. Because of the multiple stages of taxation, the tax is passed on to the consumer, though not in a visible way.

Real Property—Generally refers to land, including everything of a permanent nature over or under it, e.g. structures and minerals.

Regressive Tax—A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

Sales Tax—A consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax.

Statutory Tax Rate—The legally imposed rate. An income tax could have multiple statutory rates for different income levels, where a sales tax may have a flat statutory rate.

Tax Burden—A measure of taxes paid relative to another constant factor, such as total personal income, for example.

Tax Code Area—A specific area of land within which there is a unique combination of tax levies yielding a given composite tax rate. Tax Code Areas play a critical role in arriving at how much money each taxing district can levy each year. According to the state Department of Revenue, as of 2008 there were 3,150 Tax Code Areas in Washington state.

Tax Credit—A partial payment already made toward taxes due or a state benefit paid to workers through the tax system, which has the effect of increasing net income. An example of the former is the withholding tax. Examples of the latter include the earned income tax credit and the child tax credit.

Tax Deduction—An expense incurred by a taxpayer that can be subtracted from gross income. It’s subtracted from gross income when the taxpayer computes his or her income taxes. As a result, overall taxable income is lowered, thus decreasing the amount of tax paid.

Taxing District—Jurisdictions such as fire, school, water, etc. that produce a tangible service to area residents. According to the state Department of Revenue, as of 2008 there were 1,790 taxing districts in Washington state.

Tax Exemption—A foregoing from all or certain taxes that would normally be collected from an individual or an organization.

Tax Liability—The amount of total taxes due after any credits and before taking into account any advance payments made by the taxpayer.

Use Tax—A tax on the use of goods or certain services in the state when sales tax has not been paid. Goods used in Washington state are subject to either sales or use tax, but not both. The use tax compensates when sales tax has not been paid. For example, when you purchase a vehicle or vessel from a private party, you are required by law to pay use tax when the vehicle or vessel title is transferred.

Withholding Tax—An amount of money deducted from an employee’s salary and set aside to pay taxes. Employees determine the amount the employer will withhold based on the number of exemptions they claim.