- - AGRICULTURE CORE CURRICULUM - - (CLF 1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1600) Unit Title: AGRIBUSINESS TAXATION ______________________________________________________________________________ (CLF1601) Topic: INTRODUCTION TO TAXES Time Year(s) 1 Hour 3 / 4 ______________________________________________________________________________ Topic Objectives: Upon completion of this lesson, the students will be able to: Learning Outcome #: (K-1) - Describe the purposes of taxes. (K-2) - Describe the purposes of tax planning. (K-4) - Distinguish between taxable and non-taxable items. Resources: Deere & Company. (1987). FARM AND RANCH BUSINESS MANAGEMENT (2nd ed.). Available from: John Deere Technical Services, Department F, John Deere Rd., Moline, IL 61265. TOPIC PRESENTATION: INTRODUCTION TO TAXES __________________________________________________________ ACTIVITY: 1. Elicit students' perceptions of what taxes are and why and how they are collected. __________________________________________________________ A. What are taxes for? 1. Taxes are sums of money collected by various levels of government to pay for public services 2. There are many services needed by society which individuals and/or businesses cannot or will not provide on their own; these services are provided by government. For example, the U.S. government collects taxes to pay for national defense, enforcement of federal regulations, and the operation of the various branches of government. State governments collect taxes to pay for construction and maintenance, health and welfare services, prisons, and state regulatory agencies. Local governments collect taxes to pay for such services as police and fire protection, public schooling, and street repair. 3. Government services generally involve: a. Regulating b. Controlling c. Teaching d. Researching e. Reporting __________________________________________________________ ACTIVITY: 1. Develop a list of government services provided to agriculture and the government agencies that provide them. __________________________________________________________ ============================================================================== ***INSTRUCTOR PLEASE NOTE*** Services such as inspection of crops, water projects, price support programs, crop research, food processing regulation and inspection, crop reporting services, and education should be listed. Agencies listed should include U.S. Department of Agriculture (USDA), Cooperative Extension Service, California Department of Food and Agriculture, Caltrans, Army Corps of Engineers, the local school and water districts. The government occupations studied in CLF 1150, Careers in Agribusiness, should be referred to at this point. Also see CLF 1850, Governmental Agencies and Services. ============================================================================== B. Who collects taxes? 1. Taxes are collected by each level of government to cover the cost of services they provide. The major levels of government are: a. Federal (U.S.) government b. State governments c. County governments d. Municipal (city) governments e. Special districts (for example water districts) C. Kinds of Taxes 2. There are many different types of taxes. Individuals pay for government services through income, property, and sales taxes. Businesses pay many kinds of taxes depending on the type of business and the way in which the business is organized (proprietorship, partnership, or corporation). Types of taxes paid by businesses include: a. Corporate income taxes b. Employment taxes c. Social security taxes d. Sales taxes e. Property taxes f. Capital stock taxes g. Auto and truck licenses h. Inspection fees i. Workers' compensation insurance j. Unemployment insurance k. Employment taxes l. School taxes m. Business licenses 3. Income taxes are the major taxes paid by individuals and businesses. They are collected by both the federal and state governments. The amount of tax paid is based on the amount of income earned by the individual or business over some period of time, generally one year. 4. Property taxes are paid by individuals and business and are generally collected by local governments. The amount paid is based on the assessed value of real estate owned by the individual or business. 5. Sales taxes are taxes collected on the sale of most items. In California, most items bought by individuals (except for most foods) are subject to sales tax. Items bought by business to be resold are not subject to sales tax. 6. Many government services are paid for through user fees. These are charges for the use of a particular service or facility. Automobile registration fees, building inspection fees, and the charge for admission to the municipal swimming pool are all examples of user fees. C. Tax Planning 1. The purpose of tax planning is to minimize the amount of taxes paid and to avoid penalties for failing to file taxes correctly. 2. Taxes need to be taken into consideration when cash flow, investments, and budgets are analyzed. The organization of the business under individual ownership, partnership, or corporation affects how the business is taxed. The type of accounting system used (cash or accrual) also affects how the business is taxed. 3. Individuals, partnerships, and corporations engaged in farming or ranching can take advantage of special tax laws. These include: a. The ability to elect to deduct soil and conservation expenditures and pre-production expenses on vineyards and orchards. b. The ability to use cash accouting methods. c. Special capital expenditure deductions such as the special expensing election, which includes livestock. (This allows capital investments to be charged as an expense rather than being depreciated over the life of the asset). D. Sales Taxes: Taxable and Non-taxable Items 1. Sales taxes are paid by businesses to state and/or local governments monthly quarterly, or on an annual basis. 2. Sales taxes are collected from the customer by the business. The business then pays the taxes to the government. 3. If a business fails to collect sales tax from customers, the business is still responsible for paying the tax on taxable items sold. 4. Sales taxes are not charged on items bought by a business for resale. 5. In California, sales tax is not collected on certain items of importance to agriculture. These include: plants used as food, animals commonly used as food, and the seed, feed, and fertilizer used to produce these animals and plants. a. The exemption from sales tax does not include sales of perennial plants such as fruit and nut trees, vineyards, berry vines, asparagus, and rhubarb. b. Manure, chemical fertilizers, and gypsum used to produce food or feed are exempt from sales tax, while soil amendments such as peat moss or perlite are not. c. Feed for breeding horses is not subject to sales tax. Feed for racing or pleasure horses is taxable. __________________________________________________________ ACTIVITY: 1. Provide students with a list of materials sold at a nursery and/or feed store. Ask them to classify the items as taxable or non-taxable. 2. Ask students to list the taxes they pay and the services they receive from these taxes. __________________________________________________________ 12/12/91 EEZ/sg #%&C