Taxes really confused me as well until I *think* I worked out how they work.
You can only get gold income from tax % of total output. In other words, if my city produces 4 gold and i have 0% tax rate, then I get 0 gold from that city. But if my tax rate is on 50% ,then I get 2 gold from that city.
It was pretty annoying in my last game because I cast prosperity on a city that gives 1 gold/essence and I had 2 essence. Intuitively you would think I would then get 2 gold per turn because of the prosperity spell, but alas that was not the case.
At 0% tax rate, you get 0 gold from a 4 gold output city. If your tax rate was on 50% you would get a 2 gold output. In other words, 0% tax rate means 0 gold irrespective of gold producing buildings, city enchantments, etc. It makes prosperity a crappy enchantment early on, which I learned the hard way and changed it to meditation for a guaranteed 2 mana/turn for that particular city.
I reserve judgment about whether this is a good change or not. It at least makes taxes something to think about. My first impression is that it is actually a good change as it forces one to think about optimal tax rates a lot more.