Tax Planning Chapter 1

The greatest disadvantage of state tax conformity to federal income tax law is ______.

diminished control over state tax revenues because changes to the federal definition also affect the state definition of taxable income

Jurisdictional tax competition occurs ______.

between states and between foreign countries

To raise additional nontax government revenues, many states have resorted to legalized gambling in the form of ____ and ____.

casinos lotteries

VAT taxes are ______.

commonly observed in foreign jurisdictions levied on firms engaged in the production process

In the U.S., sales tax most commonly takes the form of a(n) ___ tax levied on the purchaser of the good.

consumption

The incidence of sales tax levied on the purchase of retail goods is borne by the ______.

ultimate consumer of the good

The tax base for Social Security and Medicare is ______.

wages for an employee

Mr. Walton resides in State A which has a 6% sales and use tax. He recently traveled to State B to buy a car. State B levies a 5% sales and use tax. Which of the following statements is true?

Mr. Walton owes use tax to State A equal to 1% of the purchase price.

Which statement about the federal tax law is false?

New tax legislation is typically passed once every two to four years.

Heliot Company operates its business in State H, which levies a 6 percent sales and use tax. This year, Heliot purchased a $600,000 item of tangible property in State K and paid $18,000 sales tax to the state. It also purchased a $750,000 item of tangible property in State L and paid $48,750 sales tax to the state. Firm H transported both items of property into State H for use in its business. a. Compute the use tax that Heliot owes to State H for the property purchased in State K. b. Compute the use tax that Heliot owes to State H for the property purchased in State L.

Part A: Use of Tax Heliot owes to State H for Property Purchased The value of the property in State H that Heliot Purchased $600,000 Tax rate applicable in State H 6% tax for Pre-credit use (0.06 x 600,000) $36,000 Subtract The sales tax paid by Heliot to State K ($18,000) The total Use tax Heliot Owes State H $18,000 Part B: Use tax Heliot owes state H for property purchased in State L The value of the property in State L that Heliot Purchased $750,000 Tax rate applicable in State H 6% tax for Pre-credit use (0.06 x 600,000) $45,000 Subtract The sales tax paid by Heliot to State L ($48,7500) The total Use tax Heliot Owes State H $0

Which of the following statements is true about VAT taxes?

The budgets of many industrial nations depend heavily on the collection of VAT taxes.

True or false: While tax rates may vary across states, the computation of taxable income for state tax purposes is consistent.

False

Which of the following statements concerning judicial authority is false?

A revenue ruling is the least important source of judicial authority.

Which of the following is least likely to be subject to an excise tax?

Clothing

Which of the following statements is false?

Corporate income taxes generate more federal funds than any other federal tax structure.

When did the U.S. federal income tax become a permanent tax?

In 1913, when the Sixteenth Amendment to the U.S. Constitution was ratified.

Which of the following is true regarding the taxation of business income?

In addition to paying state income tax, some corporations are also subject to an income tax levied by the city or county in which they operate.

Which of the following statements is false about the taxation of online sales?

In general, states are not interested in collecting tax on online sales because it leads to increased complexity for their tax systems.

Which federal tax generates the most government revenues?

Individual income tax

The U.S. federal tax law currently in effect is found in the ____ ____ ____ of 1986.

Internal Revenue Code

Revenue rulings and revenue procedures are written by the ______.

Internal Revenue Service (IRS)

Which of the following statements about property taxes are true?

Property taxes are also referred to as ad valorem taxes. Property tax rates are determined annually based on budgetary needs of the local jurisdiction. Taxable property includes both the value of the land and any structures affixed to it.

Indicate which of the following is least likely to be subject to a sales tax.

Purchase of milk from the grocery store

Which tax structure tends to provide local governments with the greatest source of tax revenue?

Real property tax

Advises taxpayers on how to comply with IRS procedural and administrative matters

Revenue procedure

Explains how the IRS applies the tax law to a specific set of facts

Revenue ruling

Which of the following statements best characterizes sales and use tax?

Several states have added a line to their personal tax forms that ask individuals to report their use tax obligation. Most people are unaware that their out-of-state purchases are potentially subject to use tax. An individual may be subject to both a sales tax and a use tax on a particular item. Collections of use tax are highest on assets that must be registered, like automobiles

Which of the following federal taxes are earmarked for a specific purpose?

Social Security Medicare

Which of the following is true about unemployment taxes and the benefits funded by this tax?

State governments administer unemployment benefits.

Which of the following statements is false regarding state income taxes?

States can only impose a state income tax on their residents.

Rank the following in terms of highest judicial authority to lowest judicial authority.

Supreme Court Appellate Court Trial Court

Identify two common arguments in support of taxing online sales.

Taxation of online sales would generate significant tax revenues for the states. Taxation of online sales would level the playing field between traditional brick-and-mortar stores and online retailers.

Identify issues that contribute to jurisdictional tax competition.

Taxing jurisdictions often overlap. Businesses increasingly operate on a global scale. Taxpayers are increasingly mobile and can relocate to a jurisdiction to secure a better tax situation.

What gives the federal government the right to impose a tax on individual and corporate income?

The 16th Amendment to the U.S. Constitution

Which of the following statements about a sales tax is true?

The seller is charged with collecting and remitting to the state government.

Written by the Treasury to interpret and illustrate provisions of the Internal Revenue Code

Treasury regulation

Which of the following statements about Treasury regulations is false?

Treasury regulations are part of statutory law.

Unemployment taxes are earmarked to provide monetary benefits to those who are temporarily out of work.

True

A revenue ruling is part of ______.

administrative authority

All states with a net income tax refer to the ______ definition of taxable income as a starting point for calculating state taxable income.

federal

Legalized gambling ______.

provides a nontax source of revenue to many state government budgets.

States are permitted to enact legislation compelling online retailers to collect sales tax based on the ______.

residence of the purchaser

The three basic sources of tax law are ____, ____, and ____ authority.

statutory administrative judicial

An excise tax is best described as a ______.

tax on a specific good or service

Statutory authority refers to ______.

the Internal Revenue Code