Unlike the exemption for the Federal Government, which applies to all states, the exemption for state and local governments is simply a product of the legislative process. States are free to grant exemptions without discrimination against other non-governmental bodies. Government units, such as states and their political subdivisions, are generally not subject to federal income tax. The political subdivisions of a state are entities with one or more of the state's sovereign powers, such as the power to tax.
They usually include counties or municipalities and their agencies or departments. Charitable contributions to government units are tax-deductible under section 170 (c) () (of the Internal Revenue Code) if they are made for public purposes. Assets owned by the United States are, of course, totally immune to state taxes. No state can regulate, by imposing an inspection fee, any activity carried out by the United States directly through its own agents and employees.
An initial case, whose authority is now uncertain, declared invalid a fixed-rate tax on telegraphic messages, as applied to messages sent by public officials in official matters. Most state and local government entities are not required to pay federal income tax. However, for non-tax reasons, government entities are sometimes asked to provide a tax-exempt number or a determination letter to demonstrate their status as a tax-exempt organization. However, state and local governments are not required to request this exemption status.
As indicated in the Affirmation of Your Tax-Exempt Status section, the IRS will issue a letter describing the tax situation of government entities. Most organizations and individuals will accept this letter as the justification they need. No application is required and there is no charge for this letter. This letter describes the exemption of government entities from federal income tax and cites applicable sections of the Internal Revenue Code related to deductible contributions and the exclusion of income. Judges Butler and McReynolds disagreed, and Judge Frankfurter wrote a concurrent opinion reserving the judgment as to “whether Congress can, through express legislation, exempt its officials from their civic obligations to pay the benefits of the state governments in which they live.” Revenues from federal securities are also beyond the reach of state tax authorities as they are now. In upholding the first tax, the Court held that it was not imposed on the government or its property, but on a private tenant, which was calculated by the value of the use for the contractor of the property leased by the federal government and that it was not discriminatory; that is, it was designed to equalize the tax burden borne by private companies that use exempt assets with that of similar companies that use encumbered assets.
States generally follow the federal precedent if they impose state income taxes and often exempt charities from state and local property taxes and sales taxes. Similarly, the lease by a federal bank of oil and gas land on a mining farm, which it had set aside land originally acquired through foreclosure and later transferred to a third party, was exempt from the state personal property tax collected on the lease and on royalties accrued thereafter. Nonprofit organizations that do not distribute profits may be exempt from federal income tax if they are organized specifically for public purposes. The national taxonomy of exempt entities, developed by the National Center for Charitable Statistics of the Urban Institute and used by the Internal Revenue Service, classifies them into 9 main groups, 26 categories and more than 600 subcategories. Any other federal agency hoping to award cost-reimbursement contracts executed in New Mexico must contact the New Mexico Department of Taxation and Revenue to sign a similar agreement.
However, a state tax was maintained on checks issued by the United States Treasurer for interest earned on government bonds, since it did not affect the credit of the National Government in any way. A state or local government can increase revenues based on U. S. property, as long as it is in possession or used by the private citizen paying taxes. Government employees to purchase mission-related supplies or services through simplified procurement procedures, when appropriate, and when the total cost does not exceed micropurchase thresholds.
