In principle the Federation and the Laender finance their tasks themselves (Article 104a I GG). In the event of tasks of the Laender on behalf of the Federation the Federation bears the costs (Article 104a II GG).
Article 104 a I
The Federation and the Länder shall separately finance the expenditures resulting from the discharge of their respective responsibilities insofar as this Basic Law does not otherwise provide.
The most important source of income of the state are the taxes. In Article 105 GG therefore the tax legislation is regulated particularly:
- exclusive legislation of the Federation about tariffs and financial monopolies
- competitive legislation for the remaining taxes, if a yield from it is entitled to the Federation
- Federal laws about taxes which yield flows to the Laender and/or municipalities needs the agreement of the Bundesrat
- Legislation power of the Laender about local consumption and expenditure taxes
The taxes flow partially just to the Federation (Article 106 I GG) or just to the Laender (Article 106 II GG) to the most part however to both together.
Article 106 III
Revenue from income taxes, corporation taxes, and turnover taxes shall accrue jointly to the Federation and the Länder (joint taxes)...
The most important taxes that are the corporation tax, the value added tax and the income tax flow into a "pot" (tax group).
A part of the income tax goes to the municipalities (After treasury rate), the remainder of the income tax and the corporation tax flow to Federation and Laender ever to the half, the distribution of the value added tax is made through an Federal law requiring consent.
The financial administration is done according Article 108 GG by both, the Federation and the Laender. Regional finance offices are Federation and Laender authorities at the same time.
Article 108 I and II
(1) Customs duties, fiscal monopolies, taxes on consumption regulated by a federal law, including the turnover tax on imports, and levies imposed within the framework of the European Communities shall be administered by federal revenue authorities. The organization of these authorities shall be regulated by a federal law. The heads of intermediate authorities shall be appointed in consultation with the Land governments.
(2) All other taxes shall be administered by the revenue authorities of the Länder. The organization of these authorities and the uniform training of their civil servants may be regulated by a federal law requiring the consent of the Bundesrat. The heads of intermediate authorities shall be appointed in agreement with the Federal Government.
Household nature (Article 109 ff GG)
The Federation and the Laender have in principle a separate, independent from each other household nature (Article 109 I GG). The overall economic equilibrium must be considered by both. For the protection against a disturbance of the overall economic equilibrium measures for Federation and Laender can be prescribed by an Federal law requiring consent. Common household principles can be issued by an Federal law requiring consent.
Article 109 I - III
1) The Federation and the Länder shall be autonomous and independent of one another in the management of their respective budgets.
(2) In managing their respective budgets the Federation and the Länder shall take due account of the requirements of the overall economic equilibrium.
(3) A federal law requiring the consent of the Bundesrat may establish principles applicable to both the Federation and the Länder governing budgetary law, the responsiveness of budgetary management to economic trends, and longterm financial planning.