Legal Definitions - duplicate taxation

Duplicate taxation, also commonly known as double taxation, occurs when the same income, asset, or transaction is taxed more than once. This can happen when different taxing authorities (such as a state and a city, or two different countries) both impose a tax on the same item, or when the same authority taxes the same item at different stages of its economic life.

Here are some examples to illustrate duplicate taxation:

• Corporate Profits and Shareholder Dividends:

  Imagine a company that earns a profit. First, the government taxes this profit at the corporate level through corporate income tax. After paying this tax, the company distributes a portion of its remaining profit to its shareholders as dividends. When shareholders receive these dividends, they must then report them as income on their personal tax returns and pay income tax on them. In this scenario, the original profit earned by the company is effectively taxed twice: once when the company earns it, and again when it is distributed to the individual shareholders.

• International Income for Individuals:

  Consider an individual who is a citizen and resident of Country A but works for several months in Country B, earning income there. Country B, where the work was performed, taxes this income. However, Country A, where the individual is a resident, also taxes its citizens and residents on their worldwide income. Without a tax treaty or specific foreign tax credits, this individual could end up paying income tax to both Country A and Country B on the exact same earnings, representing duplicate taxation of their international income.

• State and Local Property Taxes on the Same Asset:

  A business owns a commercial building. The county government assesses a property tax on this building based on its value. Separately, the city government, within which the building is located, also assesses its own municipal property tax on the *exact same building*, again based on its assessed value. In this instance, the single asset (the commercial building) is subject to two distinct property taxes from different levels of local government, leading to duplicate taxation on the same property.