chapter 1 tax

The city of Springvale imposes a net income tax on businesses operating within its jurisdiction. The tax equals 1% of income up to $100,000 and 1.5% of income in excess of $100,000. The Springvale Bar and Grill generated $782,000 net income this year. Compute its city income tax.

$11,230 (1% × $100,000) + (1.5% × $682,000) = $11,230.

The city of Lamar imposes an income tax on businesses operating in its jurisdiction. The tax is 2% on income up to $300,000 and 3% on income in excess of $300,000. Spring Corporation generated $700,000 of income this year and is subject to $_____ of city income tax.

18,000

Which of the following statements about designing a tax system is false?

A graduated system involves multiple tax rates that decrease as the base increases. (they increase)

Which of the following statements about tax exempt status and tax abatements are TRUE? (Choose all that apply.)

A tax abatement is generally granted on a more temporary basis relative to tax exempt status. Tax exempt status is generally granted on a relatively permanent basis.

Which of the following is not characteristic of a tax?

A tax is intended to punish unacceptable behavior.

Which of the following is the best example of an activity-based tax?

A tax on business net income

Which of the following is an earmarked tax?

A tax that generates revenues that the government can spend only to build more National Parks

Which of the following is the best example of an earmarked tax?

A tax that generates revenues that the government may only use to maintain National Parks

Acme Incorporated's federal income tax increased by $100,000 this year. As a result, Acme reduced the annual dividend paid on its common stock by $100,000. Who bears the incidence of the corporate tax increase?

Acme's shareholders

Big Corporation's federal income tax increased by $100,000 this year. As a result, Big reduced the annual dividend paid to shareholders by $50,000 and also increased the sales price of its products to generate another $50,000 in revenue. Who bears the incidence of the corporate tax increase? (Select all that apply.)

Big's customers Big's shareholders

The property tax on a rental house owned by Mr. Janey increased by $1,200 this year. Mr. Janey increased the monthly rent charged to his tenant, Ms. Lacey, by $45. Who bears the incidence of the property tax increase?

Both Mr. Janey and Ms. Lacey

Which of the following does not meet the definition of personalty?

Building

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

Clothing

Which of the following statements is false?

Excise taxes are only levied on goods, never services.

Select all answers that accurately describe Social Security and Medicare.

Federal Taxes Earmarked taxes Imposed on employees and self-employed individuals

Which statement about taxes on personal property is false?

Governments generally assess property taxes on personalty based on the value of the property as estimated by the government assessor.

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 are true about sales tax? (Select all that apply.)

In the U.S., sales taxes are more commonly structured as a consumption tax. Sales tax rates vary across states. The sales tax base is the retail price of the good.

Federal transfer taxes (select all that apply)

Include the federal estate tax Include the federal gift tax

Which of the following federal taxes are earmarked for a specific purpose? (Select all that apply.)

Medicare Social Security

Mr. Dodd resides in a state with a 6% sales and use tax. He recently traveled to another state to buy furniture and paid that state's 4% sales tax. Which of the following statements is true?

Mr. Dodd's use tax liability to his home state equals 2% of the purchase price of the furniture.

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.

Ms. Marla owns a rental house. Property taxes have increased by $1,000 this year. As a result, Ms. Marla increased the rent by $600 ($50/month). Who bears the incidence of the property tax increase? (Select the best answer.)

Ms. M and the tenants

Which of the following statements about sales and use taxes is true?

None of these choices are true. - If an individual pays a sales tax on the purchase of an item, she will not have to pay a use tax on the purchase. - If an individual pays a sales tax on the purchase of an item, she will also have to pay a use tax on the purchase. - Many states that impose a sales tax do not impose a complementary use tax.

Which of the words below best describes the U.S. environment for taxation?

Pervasive and dynamic

Which of the following statements about property taxes are true? (Select all that apply.)

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.

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

Real property tax

SJF Incorporated, which has its corporate offices in Boise, Idaho, conducts business in Idaho, Oregon, California, and British Columbia, Canada. Which of the following statements is true?

SJF may be required to pay income tax to Idaho, Oregon, California, British Columbia, the United States, and Canada. Explanation - SJF may have to pay income tax to every taxing jurisdiction within which it conducts business.

Which of the following statements best characterizes sales and use tax? (Select all that apply.)

Several states have added a line to their personal tax forms that ask individuals to report their use tax obligation. Collections of use tax are highest on assets that must be registered, like automobiles. 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.

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.

True or false: Unemployment taxes are earmarked to provide monetary benefits to those who are temporarily out of work.

TRUE

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

The 16th Amendment to the U.S. Constitution

Mr. Johnson is a U.S. citizen residing in Argentina. Which of the following statements is true?

The U.S. government has jurisdiction to tax Mr. Johnson.

Mrs. King is a U.S. citizen who permanently resides in South Africa. Which of the following statements is true?

The U.S. government has jurisdiction to tax Mrs. King.

Mrs. Renfru is a Brazilian citizen who permanently resides in Houston, Texas. Which of the following statements is true?

The U.S. government has jurisdiction to tax Mrs. Renfru.

Which of the following statements is true about VAT taxes?

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

Jim and Jenny paid $50 to their county to obtain a marriage license. Choose the answer that best describes this payment.

The payment best represents a user fee because it entitles the couple to a specific benefit (the right to marry).

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

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

John earned $20,000 of income and is subject to $2,000 of tax. Margaret earned $50,000 of income and is subject to $5,000 of tax. This tax can best be described as ______.

a flat tax

Assets defined as personalty ______.

become a more viable source of tax revenues when taxation is linked to a form of required registration or licensing

Governments typically grant tax abatements to ______.

commercial enterprises

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

consumption

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

The revenues from a(n) ______ tax are designated to finance specific government expenditures.

earmarked

True or false: Payment of a tax entitles the payer to specific goods and services.

false

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

false

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

federal

In the United States, _____ and _____ are the two primary entities subject to income.

individuals corporations

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

internal revenue code

VAT taxes are ______. (Select all that apply.)

levied on firms engaged in the production process commonly observed in foreign jurisdictions VAT taxes are based on the incremental value that a firm adds to the good, rather than the total value.

In general, sales taxes ______.

often have a local and a state component

An excise tax is best described as a ______.

tax on a specific good or service

True or false: Tax structures are based on political and economic assumptions that are constantly evolving.

true

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