Page 1 of 120
Solution Manual for McGraw Hill's Taxation
of Individuals and Business Entities, 2026
Edition, 15th Edition Chapter 1
1. Taxes influence business decisions such as where a business
should locate or how it should be structured.
• Answer: True
• Rationale: Taxes are a major factor in business decisions,
including location (state tax rates) and entity structure (C-
corp vs. S-corp vs. LLC) .
,Page 2 of 120
2. Tax policy rarely plays an important part in presidential
campaigns.
• Answer: False
• Rationale: Tax rhetoric is a central component of political
campaigns, as candidates distinguish themselves based on
how they plan to tax the public .
3. Margaret recently received a parking ticket. This is a
common example of a local tax.
• Answer: False
• Rationale: A parking ticket is a penalty or fine intended
to punish illegal behavior, not a tax imposed for revenue
purposes .
4. George recently paid $50 to renew his driver's license. The
$50 payment is considered a tax.
• Answer: False
,Page 3 of 120
• Rationale: The payment is a fee that directly relates to a
specific benefit received (the privilege of driving),
whereas a tax is not tied to a specific direct benefit .
5. A 1 percent charge imposed by a local government on
football tickets sold is not considered a tax if all proceeds are
earmarked to fund local schools.
• Answer: False
• Rationale: This is an "earmarked tax." Even though the
funds go to a specific purpose, the payer does not
receive a direct benefit proportional to the payment,
which keeps it classified as a tax .
6. One key characteristic of a tax is that it is a required
payment to a governmental agency.
• Answer: True
• Rationale: Taxes are compulsory (not voluntary) transfers
of wealth to a government entity .
, Page 4 of 120
7. Common examples of sin taxes include the taxes imposed
on airline tickets and gasoline.
• Answer: False
• Rationale: "Sin taxes" specifically target goods
considered socially undesirable (e.g., cigarettes, alcohol).
Gas taxes are generally for infrastructure funding, and
airline taxes are for services .
8. One benefit of a sin tax (e.g., a tax on cigarettes) is that it
should increase the demand for the products being taxed.
• Answer: False
• Rationale: Sin taxes are intended to decrease demand by
making the product more expensive (price elasticity) .
9. The two components of the tax calculation are the tax rate
and the taxpayer's status.
• Answer: False
Solution Manual for McGraw Hill's Taxation
of Individuals and Business Entities, 2026
Edition, 15th Edition Chapter 1
1. Taxes influence business decisions such as where a business
should locate or how it should be structured.
• Answer: True
• Rationale: Taxes are a major factor in business decisions,
including location (state tax rates) and entity structure (C-
corp vs. S-corp vs. LLC) .
,Page 2 of 120
2. Tax policy rarely plays an important part in presidential
campaigns.
• Answer: False
• Rationale: Tax rhetoric is a central component of political
campaigns, as candidates distinguish themselves based on
how they plan to tax the public .
3. Margaret recently received a parking ticket. This is a
common example of a local tax.
• Answer: False
• Rationale: A parking ticket is a penalty or fine intended
to punish illegal behavior, not a tax imposed for revenue
purposes .
4. George recently paid $50 to renew his driver's license. The
$50 payment is considered a tax.
• Answer: False
,Page 3 of 120
• Rationale: The payment is a fee that directly relates to a
specific benefit received (the privilege of driving),
whereas a tax is not tied to a specific direct benefit .
5. A 1 percent charge imposed by a local government on
football tickets sold is not considered a tax if all proceeds are
earmarked to fund local schools.
• Answer: False
• Rationale: This is an "earmarked tax." Even though the
funds go to a specific purpose, the payer does not
receive a direct benefit proportional to the payment,
which keeps it classified as a tax .
6. One key characteristic of a tax is that it is a required
payment to a governmental agency.
• Answer: True
• Rationale: Taxes are compulsory (not voluntary) transfers
of wealth to a government entity .
, Page 4 of 120
7. Common examples of sin taxes include the taxes imposed
on airline tickets and gasoline.
• Answer: False
• Rationale: "Sin taxes" specifically target goods
considered socially undesirable (e.g., cigarettes, alcohol).
Gas taxes are generally for infrastructure funding, and
airline taxes are for services .
8. One benefit of a sin tax (e.g., a tax on cigarettes) is that it
should increase the demand for the products being taxed.
• Answer: False
• Rationale: Sin taxes are intended to decrease demand by
making the product more expensive (price elasticity) .
9. The two components of the tax calculation are the tax rate
and the taxpayer's status.
• Answer: False
