Tax Exporting Definition

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Tax Exporting Definition

What Is Tax Exporting?

Tax exporting is the practice of placing tax obligations on inhabitants of another country. This word may apply to taxes that span any boundaries, from local to international.

Key Takeaways

  • Tax exporting is the practice of putting tax responsibilities on citizens of another jurisdiction, whether across local or international boundaries.
  • Tax exportation may take numerous shapes in order to produce more money or to discourage a certain industry or activity.
  • In other cases, the practice is merely the transfer of tax responsibilities to out-of-state residents who work in a particular state and pay taxes at the same rate as local residents.
  • Tariffs are a typical example of a tax exported with the intent of placing an economic or political burden on a foreign enterprise or country.
  • Federally, every foreign citizen generating money in the United States is required to file a return and pay income tax, however this might be lowered by a tax treaty between the United States and the foreign country.

Understanding Tax Exporting

Tax exportation may take numerous shapes and achieve different goals. In other cases, the practice is merely a transfer of tax responsibilities to out-of-state persons who happen to work in a particular state’s economy and pay taxes at the same rate as local taxpayers.

In some circumstances, a tax may be purposefully designed to put a heavier cost on foreigners than on residents. This might simply be a way for a local government to generate additional cash, or it could be intended to discourage a certain industry or conduct. In other circumstances, a tax might be used as a political weapon against the government of another jurisdiction.

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On a federal level, every foreign national who earns money in the United States is required to submit a tax return and pay taxes on that income. A tax treaty between the United States and the foreigner’s nation may minimize this tax, and states may respect such accords to differing degrees. If the Internal Revenue Service (IRS) concludes that a company situated abroad generates regular and routine revenue from U.S. operations, even if via an intermediary, the corporation will be liable to U.S. taxes. The foreign corporation will be taxed at the same graduated corporate rate as a US firm, although in rare situations, a tax treaty may intervene to decrease that rate.

Punitive or Political Tax Exporting

Tariffs are a typical example of a tax exported with the intent of placing an economic or political burden on a foreign enterprise or country. Tariffs are basically targeted taxes that might be based on the value of an item being transported across international boundaries or a set fee that is not related to the trade value of an import. Tariffs, according to some economists, are a greater burden on consumers than on businesses or governments, yet governments continue to employ them as punitive measures against one another.

Tariffs were initially utilized by the United States government in the late 18th century to generate income and protect home industry from foreign competition. Tariffs were the primary source of revenue for the whole United States government throughout most of the nineteenth century, and they were not specifically aimed at any single enterprise or nation. The fundamental pillars of these exports taxes were revenue generating and protectionism.

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Following World Wars I and II, tariff rates fell dramatically as nations shifted toward open global commerce. In the early twenty-first century, there has been a reaction against free trade. Some economic and political figures in the United States have stated that free trade agreements are harming the country and have recommended tariffs as revenge and forced revision of such accords.

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