Taxes and Accounting Course

Taxesand Accounting

[Course]

[Instructor]

  1. Unfunded Mandates Reform Act of 1995

TheUnfundedMandates Reform Act of 1995 (UMRA) leads to difficulties inestimating costs and benefits leading to the distortion of the debateon the importance of UMRA rather than providing information (Roin,2010). Moreover, local governments argue that the CongressionalBudget Office underestimates the local government costs. Interestgroups argue that the CBO fails to consider indirect costs whendetermining the probability of legislations exceeding the mandatethresholds. Therefore, UMRA allows the Congress to concludewrongfully that it has considered the effects of legislation onsubnational governments even when it does not have a trueunderstanding of the effects (Roin,2010).

UMRAsets a dollar threshold when it comes to individual bills therefore,it denies space for consideration of the costs that are imposed inaggregate. Redesigning UMRA will require the consideration of thislimitation to provide more space for deliberation of costs (Roin,2010).UMRA has a narrow focus and therefore its analysis by individual billfails to address the net effect of mandates on the lower levels ofgovernment. Redesigning UMRA should enable it to expand itsfocus/scope to avoid overestimation of subnational costs because ofthe ability to provide proper segregation to the incremental costs ofsegregation.

Atits current state, UMRA promotes the distortion of debate that makesthe legislation to appear more costly to the sub-national governmentunits. In instances where it is hard to quantify benefits, forexample in environmental policies, UMRA may distort debate (Roin,2010).The number of limitations and exclusions on the definition of itsobligation has led some critiques to dub UMRA ‘toothless’.Additionally, provisions reviewed by CBO are subjected todefinitional exclusions and requirements. Its revision shouldeliminate this subjectivity to enable its efficiency (Roin,2010).

  1. Investment Limitations

TheIllinois Metropolitan Investment Fund (IMET) sets policies for theinvestment of public funds in ways that provide the best returns forthe people of Illinois as well as the preservation of capital. IMETis the investment vehicle for Illinois public funds that are notrequired for immediate use. The investments made shall be made withcare and judgment under the prevailing circumstances (Morelet.al, 2012).IMET requires public investments to be made with prudence andintelligence, rather than for speculation.

Portfoliosmanaged by the public Illinois funds can be invested in cashequivalents and fixed income securities. The Illinois MetropolitanInvestment Fund’s aim is to preserve the principal. Investmentsshall ensure the preservation of capital in the overall portfolio.The IMET seeks to remain liquid to allow for withdrawals by Fundmembers with a notice of five business days. Under the Illinois laws,public fund managers should ensure that investments obtainappropriate market rates of return about the circumstances prevailingin the monetary environment (Morelet.al, 2012).

Employeesand officers involved in the investment process are required torefrain from personal business activities that that could be inconflict the proper execution of public investments. The allowedinvestments include fixed income securities rated at the highestrating classifications. Additionally, public funds can be invested inall interest-bearing bonds of any township, city, county andmunicipal cooperation within the state of Illinois (Morelet.al, 2012).The IMET prohibits the following transactions in the management ofpublic portfolios: Preferred or common stocks, reverse repurchaseagreements, intentional use of leverage/margin purchases, futures,and options, direct private placements, direct ownership of mortgagesand real estate and direct interests in oil and gas as well as othermineral explorations. Investments can also be made in commercialpapers, which must mature within 180 days after the date of purchase(Morelet.al, 2012).

  1. Fund-Based Accounting

Fundbased accounting is beneficial to the government because it issimilar to non-profit organizations with financial structures thatare different from businesses. Government objectives differ from theobjectives of businesses. Therefore, adopting similar accountingformats may be misleading, therefore the need to adopt fundaccounting. Statements from fund-based accounting provide criticalpieces of information on available resources, their purposes,revocable decisions made and the legal limits attached to the funds(Covrig et.al, 2012). Moreover, fund-based accounting recognizesinter-fund transfers and loans calls, which are unique to non-profitorganizations. Most importantly is that fund accounting allowsclarity especially in government where there are transactionsinvolving large amounts of money.

Governmentfunds can be classified into three broad categories. The firstcategory is the governmental funds. These types of funds are used inaccounting for tax-supported/governmental activities. The secondcategory of government funds is the proprietary funds. These fundsare used in accounting for the government’s business-typeactivities. These activities are those that are supported at leastpartly by charges or fees (Covrig et.al, 2012). The third category isthe fiduciary funds. These types of funds are used in accounting forresources held by the government as a trustee or agent for partiesthat are not in the government. However, the government cannotutilize these funds to support its programs since they are held intrust. The general fund is used to account for all governmentresources except those required to be accounted for in other funds(Covrig et.al, 2012)

  1. Property Tax Evaluation

AssessmentEquity

TheIllinois department of revenue conducts sales ratio/assessmentstudies of assessment districts i.e. counties and townships. Thestudies compare the sale prices of property and assessment ofproperties that have been sold. The studies are meant to determinethe accuracy of the assessments in each district, which is usually33.33%of fair cash value for counties other than Cook (Wahlund,2015).The department of revenue or the chief county assessment officerprovides information to taxpayers about the median level assessmentsfor every township/ county. Therefore, the entire process is not onlyequitable but also transparent. The process of arriving at the medianlevel assessments is clearly elaborate in the Illinois taxation laws.Again, the department of revenue provides proper notifications forany assessment charges to enable taxpayers to make informed andtimely challenges to improper assessments (Wahlund,2015).

Theproperty tax in Champaign has a broad tax base since it applies toevery property owner with the exceptions of those listed under theIllinois tax laws. The broad tax base enables the local government toraise enough funds to sustain public services. Property tax inChampaign meets both short-term and long-term adequacy because of itsreliability. Property tax in Illinois grows at a predictable pace,therefore contributing to its adequacy. Property tax is one of themost easily collectible taxes because the taxes are charged onproperties with specific geographical locations and owners registeredunder the local governments. The prudent information sharing andregistration systems in Champaign ensure the adequate implementationof property tax (Wahlund,2015).

  1. Income Tax

Illinoisis among the eight States that have a flat income tax structure,although efforts are underway to turn it into a graduated income taxstructure. In 2015, individual income tax rates in Illinois decreasedfrom 5% to 3.75% (Wahlund,2015).Subsequently, income taxes for corporations (not including Scorporations), the income tax decreased from 7% to 5.25% (Wahlund,2015).The State of Illinois exempts bonds, debentures, obligations, andnotes issued by the following parties from Illinois income tax:

  1. Commodity credit cooperation

  2. The federal insurance deposits corporation

  3. Banks for corporations

  4. Federal intermediate credit banks

  5. Federal farm credit banks

  6. General insurance fund

  7. Financing Corporation (FICO)

Becauseof Illinois Statute, the following items of income are exempt fromIllinois Income Tax:

  1. Income earned in Home Ownership Made easy programs.

  2. Income earned by trust accounts under the Pre-Need Cemetery Sales

  3. Income from nuclear decommissioning trusts

  4. Income from college savings programs (Wahlund, 2015).

IllinoisState offers a competitive range of incentives including tax creditssuch as the Illinois SmallBusiness Job Creation Tax Credit Programand the IllinoisAngel Investment Credit Program(Wahlund,2015).

  1. Internet Taxation

ForStates to address tax issues arising from the advancement of onlineretail stores, the US Congress should have legislations that allowstates to require out-of-state sellers to collect sales tax. However,the Congress should also require states to create and maintain simpleand fair tax systems. The tax system should not overburden theout-of-state sellers in Illinois. Illinois should amend its tax lawsto require out-of-state sellers that have no nexus to collect andremit taxes on Internet sales to the residents of Illinois (Covriget.al, 2012).

Thestate of Illinois should advance a multipronged approach by assertingits tax powers through an aggressive enforcement of existing taxlaws. Additionally, the state should extend the reach of current taxlegislations through legal amendments to go beyond the outer limitsof the state’s current commerce clause jurisprudence. However, thestate should be consistent with the current Supreme Court doctrine inseeking to extend the government’s authority over remote vendors.In particular, Illinois should assert attributional nexus whenindustry business practices back that claim (Covriget.al, 2012).Again, the state should include comprehensive simplifications for allretailers to avoid overburdening the out-of-state retailers.

References

Covrig,V. M., Defond, M. L., &amp Hung, M. (2011). Home bias, foreignmutual fund holdings, and the voluntary adoption of internationalaccounting standards.&nbspJournalof Accounting Research,&nbsp45(1),41-70.

Morel,N., Palier, B., &amp Palme, J. (2012).&nbspTowardsa social investment welfare state?: ideas, policies, and challenges.Policy Press.

Roin,J. A. (2010). Reconceptualizing Unfunded Mandates and OtherRegulations.&nbspNw.UL Rev.,&nbsp93,351.

Wahlund,R. (2015). Tax changes and economic behavior: The case of taxevasion.&nbspJournalof Economic Psychology,&nbsp13(4),657-677.