SOLUTION MANUAL FOR
Principles of Taxation for Business and Investment Planning 2020 23rd Edition
by Sally Jones, Shelley Rhoades Catanach
Chapter 1 Taxes and Taxing Jurisdictions
Questions and Problems for Discussion
1. Tax-payments-differ-from-government-fines-and-penalties-because-they-aren‘t-intended-to-deter-or-
punish-unacceptable-behavior.-Tax-payments-differ-from-fees-or-user-charges-because-they-don‘t-
entitle-the-payer-to-a-specific-government-good-or-service,-such-as-a-postage-stamp-or-a-driver‘s-
license.-Tax-payments-also-differ-from-fees-or-user-charges-because-they-are-compulsory.--
-
2. This-payment-has-characteristics-of-a-tax,-a-penalty,-and-a-user-fee.-The-compulsory-payment-is-
not-specifically-punitive-but-does-apply-selectively-to-those-companies-most-likely-responsible-for-
the-polluted-condition-of-Green-River.-However,-these-same-companies-may-be-the-entities-that-
benefit-most-from-the-environmental-clean-up.--
-
3. This-payment-more-closely-resembles-a-fee-for-a-government-service-than-a-transaction-based-
tax-because-the-transaction-occurs-between-a-private-party-and-the-jurisdiction-itself,-rather-than-
between-private-parties-engaging-in-a-market-transaction.-The-payment-also-entitles-the-payer-to-
a-specific-benefit-(the-right-to-marry-under-law).--
-
4. To-the-extent-that-the-decline-in-exterior-maintenance-reduces-the-value-of-Mr.-Powell‘s-apartment-
complex,-he-bears-the-incidence-of-the-increased-property-tax.-To-the-extent-that-the-decline-
reduces-the-value-of-adjoining-properties-or-makes-the-neighborhood-less-attractive,-the-owners-
of-the-adjoining-properties-and-the-neighborhood-residents-share-the-incidence-of-the-tax-
increase.-
-
5. People-who-don‘t-directly-use-public-schools-(such-as-Mr.-and-Mrs.-Ahern-or-people-who-don‘t-
have-children)-indirectly-benefit-from-a-public-education-system-for-the-general-population.-
Arguably,-public-education-contributes-to-a-skilled-workforce-and-improves-the-cultural-and-social-
environment-in-which-Mr.-and-Mrs.-Ahern-live.-Based-on-this-argument,-Mr.-and-Mrs.-Ahern-
should-not-be-exempt-from-the-local-property-tax.-
-
6. The-consumers-who-pay-the-same-price-for-a-smaller-bar-of-soap-of-lesser-quality-bear-the-
incidence-of-the-new-gross-receipts-tax.--
-
7. Real-property-can‘t-be-hidden-or-moved,-and-its-ownership-(legal-title)-is-a-matter-of-public-record.-
In-contrast,-personal-property-is-mobile-and-may-be-easily-concealed.-Moreover,-jurisdictions-may-
not-have-an-effective-means-to-discover-or-trace-ownership-of-personal-property.--
-
8. Arguably,-private-golf-courses-beautify-the-locality-and-are-environmentally-more-desirable-than-
other-commercial-activities.-They-also-may-require-more-acreage-than-other-businesses-and,-
therefore,-would-be-at-a-competitive-disadvantage-without-a-preferential-real-property-tax-rate.--
-
9. Many-jurisdictions-that-levy-property-taxes-provide-an-exemption-for-public-institutions,-such-as-
state-universities-or-private-colleges.-If-University-K-is-entitled-to-such-an-exemption,-every-
commercial-building-or-residence-acquired-by-the-University-reduces-the-local-jurisdiction‘s-
property-tax-base.--
-
10. Excise-taxes-are-imposed-on-a-much-narrower-range-of-consumer-goods-and-services-than-sales-
taxes.-Consequently,-people-can-more-readily-avoid-purchasing-the-specific-good-or-service-
subject-to-excise-tax.--
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
1-1
,11. The-tax-increase-may-have-reduced-the-aggregate-demand-for-consumer-goods-and,-
consequently,-municipal-residents-are-buying-fewer-goods.-A-second-possibility-is-that-municipal-
residents-are-traveling-to-other-jurisdictions-with-lower-tax-rates-or-making-more-purchases-
through-mail-order-catalogs-or-on-line.--
-
12. From-a-political-perspective,-liquor-and-cigarettes-sales-make-an-excellent-tax-base-because-
consumption-of-the-two-products-is-purely-discretionary,-and-any-decline-in-consumption-because-
of-the-tax-is-socially-desirable.-From-an-economic-perspective,-these-sales-are-a-good-tax-base-
because-the-demand-for-liquor-and-cigarettes-is-relatively-price-inelastic.-In-other-words,-people-
who-drink-and-smoke-on-a-regular-basis-buy-these-products-regardless-of-a-heavy-excise-tax.--
-
13. The-federal-income-has-the-broader-base.-The-federal-payroll-tax-is-imposed-on-wages,-salaries,-
and-other-forms-of-compensation-earned-by-employees.-The-federal-income-tax-is-imposed-on-all-
types-of-compensation-as-well-as-net-business-profit,-investment-income,-and-any-other-income-
item-from-whatever-source-derived.--
-
14. A-property-tax-is-a-periodic-(usually-annual)-tax-levied-on-the-ownership-of-property-and-based-on-
the-value-of-the-property-on-a-particular-assessment-date.-A-transfer-tax-is-a-transactionbased-tax-
levied-on-the-transfer-of-property-from-one-party-to-another.-A-transfer-tax-is-based-on-the-value-of-
the-property-at-date-of-transfer.--
-
15. If-the-federal-government-could-―piggy-back‖-a-national-sales-tax-on-existing-state-sales-tax-
collection-systems,-the-federal-government-could-avoid-creating-a-new-federal-agency-for-
collecting-the-tax.-In-contrast,-the-federal-government-would-have-to-create-a-new-collection-
system-for-a-national-VAT.-However,-a-national-VAT-would-be-less-likely-to-cause-jurisdictional-
conflict-between-the-federal-government-and-the-states-because-states-don‘t-depend-on-VATs-as-
a-source-of-revenue.--
-
16. The-Internal-Revenue-Code-is-federal-statutory-law,-enacted-by-Congress-and-signed-by-the-
President.-Technically,-Treasury-regulations-only-interpret-and-explain-the-statute-and-aren‘t-laws-
in-their-own-right.-Thus,-regulations-are-less-authoritative-than-the-Code-itself.-However,-because-
Congress-authorized-the-Treasury-to-write-regulations,-they-are-the-government‘s-official-
interpretation-of-statutory-law.-Practically,-the-regulations-carry-considerable-authoritative-weight.--
-
-
Application-Problems-
-
1. a.-The-statement-of-facts-identifies-three-taxpayers:-Mr.-Josh-Kenney,-JK-Services,-and-JK-Realty.-
-
b. The-government-of-the-locality-in-which-Mr.-Kenney-resides,-the-state-government-of-Vermont,-and-
the-U.S.-government-have-jurisdiction-to-tax-Mr.-Kenney.-The-local-governments-of-the-four-
counties-in-which-JK-Services-conducts-business,-the-state-government-of-Vermont,-and-the-U.S.-
government-have-jurisdiction-to-tax-JK-Services.-The-city-of-Boston,-the-state-government-of-
Massachusetts,-and-the-U.S.-government-have-jurisdiction-to-tax-JK-Realty.-
-
2. a.-The-United-States-has-jurisdiction-to-tax-Mrs.-May-because-she-is-a-permanent-resident.--
-
b. The-United-States-has-jurisdiction-to-tax-Mrs.-May-only-on-the-U.S.-source-rental-income-generated-
by-the-Manhattan-real-estate.--
-
c. The-United-States-does-not-have-jurisdiction-to-tax-Mrs.-May.--
-
d. The-United-States-has-jurisdiction-to-tax-Mrs.-May-because-she-is-a-U.S.-citizen.--3.- a.-The-
United-States-has-jurisdiction-to-tax-Mr.-Tompkin-because-he-is-a-U.S-citizen.--
-
b. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-only-on-the-U.S.-source-rental-income-
generated-by-the-Buffalo-real-estate.--
-
c. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-because-he-is-a-permanent-resident.--
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
1-2
,-
d. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-on-his-share-of-the-U.S.-source-business-
income-generated-by-Sophic-Partnership.---
4.- State-A:-
- - Volume-of-sales-before-rate-increase- $800,000,000-
- - Original-tax-rate- ------.05-
- - Revenue-before-rate-increase- $40,000,000-
-
- - Volume-of-sales-after-rate-increase- $710,000,000-
- - New-tax-rate- ------.06-
- - Revenue-after-rate-increase- $42,600,000-
-
- - Additional-revenue-($42,600,000- -$40,000,000)- $2,600,000-
-
- State-Z:-
- - Volume-of-sales-added-to-tax-base- $50,000,000-
- - Tax-rate- -----.05-
- - Additional-revenue- $2,500,000-
-
5. a.-The-property-tax-is-$8,300-($415,000- -2%).-
-
b. The-property-tax-is-$19,000-([$500,000- -2%]-+-[$225,000- -4%]).-
-
6. a.-The-property-tax-is-$39,000-($1.3-million- -3%).-
- -
b. The-property-tax-is-$85,000-([$2-million- -3%]-+-[$2.5-million- -1%]).-
-
7. Increase-in-County-G‘s-aggregate-assessed-property-tax-value- $23,000,000-
- Assessed-value-of-Lexon‘s-new-facility- (20,000,000)-
- Net-increase-in-County-G‘s-tax-base- -$3,000,000-
- Tax-rate- - ----.04-
- Net-effect-on-County-G‘s-current-year-revenue- - $120,000-
-
8. a.-Value-of-property-purchased-in-State-K- $600,000-
- - Use-tax-rate-in-State-H- ---.06-
- - Pre-credit-use-tax- $36,000-
- - Sales-tax-paid-to-State-K- (18,000)-
- - Use-tax-owed-to-State-H- $18,000-
-
b. Value-of-property-purchased-in-State-L- $750,000-
- - Use-tax-rate-in-State-H- ---.06-
- - Pre-credit-use-tax- $45,000-
- - Sales-tax-paid-to-State-L- (48,750)-
- - Use-tax-owed-to-State-H- -0--
-
9. a.-Value-of-property-purchased-in-State-B- $90,000-
- - Use-tax-rate-in-State-V- ---.05-
- - Pre-credit-use-tax- $4,500-
- - Sales-tax-paid-to-State-B- (5,400)-
- - Use-tax-owed-to-State-V- -0--
-
b. Value-of-property-purchased-in-State-D- $200,000-
- - Use-tax-rate-in-State-V- ---.05-
- - Pre-credit-use-tax- $10,000-
- - Sales-tax-paid-to-State-D- (7,000)-
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distribution without the prior written consent of McGraw-Hill Education.
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, - - Use-tax-owed-to-State-V- $3,000-
-
10. a.-Mrs.-Doyle-owes-$658-Rhode-Island-use-tax-($9,400- -7%).--
-
b. Mrs.-Doyle-owes-no-Rhode-Island-use-tax-because-her-$823-New-York-sales-tax-($9,400- -
8.75%)-exceeds-$658.--
-
c. Mrs.-Doyle-owes-$188-Rhode-Island-use-tax-($658-–-$470-credit-for-Wisconsin-sales-tax-
[$9,400- -5%]).-
-
11. a.-Ms.-Pike-owes-$1,500-California-use-tax-($20,000- -7.5%).--
-
b. Ms.-Pike-owes-$475-California-use-tax-($1,500-–-$1,025-credit-for-New-Mexico-sales-tax-
[$20,000- -5.125%]).-
-
12. a.-State-R-residents-who-purchase-property-out-of-state-(i.e.,-through-the-mail)-but-use-and-
consume-the-property-in-State-R-owe-the-6-percent-use-tax.--
-
b. The-fact-that-Correll-must-collect-the-State-R-use-tax-does-not-affect-the-legal-liability-of-State-R-
residents-to-pay-the-tax.-However,-very-few-people-actually-pay-a-self-assessed-use-tax.-Thus,-
State-R-might-collect-as-much-as-$1,080,000-additional-revenue-(6-percent-of-$18-million-sales-to-
State-R-customers)-if-Correll-was-required-to-collect-use-tax-at-point-of-sale-and-remit-the-tax-to-
State-R.-
-
13. a.-Mr.-and-Mrs.-Underhill-aren‘t-required-to-pay-sales-tax-on-the-purchase-of-inventory-goods-
because-they-aren‘t-the-final-consumers-of-the-goods.-The-hardware-store‘s-retail-customers-
must-pay-the-sales-tax-when-they-purchase-goods.-Mr.-and-Mrs.-Underhill-are-required-to-
collect-this-tax-at-point-of-sale.-
-
b. Mr.-and-Mrs.-Underhill-should-time-their-purchases-to-minimize-their-inventory-on-hand-as-of-
December-31-of-each-year,-thereby-minimizing-the-book-value-on-which-the-personal-property-tax-
is-based.-
-
14. Querrey-Inc.:-
- - Sales-revenue-($9- -12.4-million-units)- $111,600,000-
- - Cost-of-sales-($6- -12.4-million-units)- (74,400,000)-
- - Value-added-by-Querrey-Inc.- $37,200,000-
- - Tax-rate- ------.03-
- - VAT- $1,116,000-
-
- Ronno-Inc.:-
- - Sales-revenue-($10- -12.4-million-units)- $124,000,000-
- - Material-cost-of-sales-($9- -12.4-million-units)- (111,600,000)-
- - Value-added-by-Ronno-Inc.- $12,400,000-
- - Tax-rate- ----.03-
- - VAT- $372,000-
-
15.-Sales-revenue-($7.50- -8.3-million-units)- $62,250,000-
- Material-cost-of-sales-($5- -8.3-million-units)- ($41,500,000)-
- Value-added-by-Wallis-Company- $20,750,000-
- Tax-rate- -----.15-
- VAT- $3,112,500-
-
-
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distribution without the prior written consent of McGraw-Hill Education.
1-4
Principles of Taxation for Business and Investment Planning 2020 23rd Edition
by Sally Jones, Shelley Rhoades Catanach
Chapter 1 Taxes and Taxing Jurisdictions
Questions and Problems for Discussion
1. Tax-payments-differ-from-government-fines-and-penalties-because-they-aren‘t-intended-to-deter-or-
punish-unacceptable-behavior.-Tax-payments-differ-from-fees-or-user-charges-because-they-don‘t-
entitle-the-payer-to-a-specific-government-good-or-service,-such-as-a-postage-stamp-or-a-driver‘s-
license.-Tax-payments-also-differ-from-fees-or-user-charges-because-they-are-compulsory.--
-
2. This-payment-has-characteristics-of-a-tax,-a-penalty,-and-a-user-fee.-The-compulsory-payment-is-
not-specifically-punitive-but-does-apply-selectively-to-those-companies-most-likely-responsible-for-
the-polluted-condition-of-Green-River.-However,-these-same-companies-may-be-the-entities-that-
benefit-most-from-the-environmental-clean-up.--
-
3. This-payment-more-closely-resembles-a-fee-for-a-government-service-than-a-transaction-based-
tax-because-the-transaction-occurs-between-a-private-party-and-the-jurisdiction-itself,-rather-than-
between-private-parties-engaging-in-a-market-transaction.-The-payment-also-entitles-the-payer-to-
a-specific-benefit-(the-right-to-marry-under-law).--
-
4. To-the-extent-that-the-decline-in-exterior-maintenance-reduces-the-value-of-Mr.-Powell‘s-apartment-
complex,-he-bears-the-incidence-of-the-increased-property-tax.-To-the-extent-that-the-decline-
reduces-the-value-of-adjoining-properties-or-makes-the-neighborhood-less-attractive,-the-owners-
of-the-adjoining-properties-and-the-neighborhood-residents-share-the-incidence-of-the-tax-
increase.-
-
5. People-who-don‘t-directly-use-public-schools-(such-as-Mr.-and-Mrs.-Ahern-or-people-who-don‘t-
have-children)-indirectly-benefit-from-a-public-education-system-for-the-general-population.-
Arguably,-public-education-contributes-to-a-skilled-workforce-and-improves-the-cultural-and-social-
environment-in-which-Mr.-and-Mrs.-Ahern-live.-Based-on-this-argument,-Mr.-and-Mrs.-Ahern-
should-not-be-exempt-from-the-local-property-tax.-
-
6. The-consumers-who-pay-the-same-price-for-a-smaller-bar-of-soap-of-lesser-quality-bear-the-
incidence-of-the-new-gross-receipts-tax.--
-
7. Real-property-can‘t-be-hidden-or-moved,-and-its-ownership-(legal-title)-is-a-matter-of-public-record.-
In-contrast,-personal-property-is-mobile-and-may-be-easily-concealed.-Moreover,-jurisdictions-may-
not-have-an-effective-means-to-discover-or-trace-ownership-of-personal-property.--
-
8. Arguably,-private-golf-courses-beautify-the-locality-and-are-environmentally-more-desirable-than-
other-commercial-activities.-They-also-may-require-more-acreage-than-other-businesses-and,-
therefore,-would-be-at-a-competitive-disadvantage-without-a-preferential-real-property-tax-rate.--
-
9. Many-jurisdictions-that-levy-property-taxes-provide-an-exemption-for-public-institutions,-such-as-
state-universities-or-private-colleges.-If-University-K-is-entitled-to-such-an-exemption,-every-
commercial-building-or-residence-acquired-by-the-University-reduces-the-local-jurisdiction‘s-
property-tax-base.--
-
10. Excise-taxes-are-imposed-on-a-much-narrower-range-of-consumer-goods-and-services-than-sales-
taxes.-Consequently,-people-can-more-readily-avoid-purchasing-the-specific-good-or-service-
subject-to-excise-tax.--
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
1-1
,11. The-tax-increase-may-have-reduced-the-aggregate-demand-for-consumer-goods-and,-
consequently,-municipal-residents-are-buying-fewer-goods.-A-second-possibility-is-that-municipal-
residents-are-traveling-to-other-jurisdictions-with-lower-tax-rates-or-making-more-purchases-
through-mail-order-catalogs-or-on-line.--
-
12. From-a-political-perspective,-liquor-and-cigarettes-sales-make-an-excellent-tax-base-because-
consumption-of-the-two-products-is-purely-discretionary,-and-any-decline-in-consumption-because-
of-the-tax-is-socially-desirable.-From-an-economic-perspective,-these-sales-are-a-good-tax-base-
because-the-demand-for-liquor-and-cigarettes-is-relatively-price-inelastic.-In-other-words,-people-
who-drink-and-smoke-on-a-regular-basis-buy-these-products-regardless-of-a-heavy-excise-tax.--
-
13. The-federal-income-has-the-broader-base.-The-federal-payroll-tax-is-imposed-on-wages,-salaries,-
and-other-forms-of-compensation-earned-by-employees.-The-federal-income-tax-is-imposed-on-all-
types-of-compensation-as-well-as-net-business-profit,-investment-income,-and-any-other-income-
item-from-whatever-source-derived.--
-
14. A-property-tax-is-a-periodic-(usually-annual)-tax-levied-on-the-ownership-of-property-and-based-on-
the-value-of-the-property-on-a-particular-assessment-date.-A-transfer-tax-is-a-transactionbased-tax-
levied-on-the-transfer-of-property-from-one-party-to-another.-A-transfer-tax-is-based-on-the-value-of-
the-property-at-date-of-transfer.--
-
15. If-the-federal-government-could-―piggy-back‖-a-national-sales-tax-on-existing-state-sales-tax-
collection-systems,-the-federal-government-could-avoid-creating-a-new-federal-agency-for-
collecting-the-tax.-In-contrast,-the-federal-government-would-have-to-create-a-new-collection-
system-for-a-national-VAT.-However,-a-national-VAT-would-be-less-likely-to-cause-jurisdictional-
conflict-between-the-federal-government-and-the-states-because-states-don‘t-depend-on-VATs-as-
a-source-of-revenue.--
-
16. The-Internal-Revenue-Code-is-federal-statutory-law,-enacted-by-Congress-and-signed-by-the-
President.-Technically,-Treasury-regulations-only-interpret-and-explain-the-statute-and-aren‘t-laws-
in-their-own-right.-Thus,-regulations-are-less-authoritative-than-the-Code-itself.-However,-because-
Congress-authorized-the-Treasury-to-write-regulations,-they-are-the-government‘s-official-
interpretation-of-statutory-law.-Practically,-the-regulations-carry-considerable-authoritative-weight.--
-
-
Application-Problems-
-
1. a.-The-statement-of-facts-identifies-three-taxpayers:-Mr.-Josh-Kenney,-JK-Services,-and-JK-Realty.-
-
b. The-government-of-the-locality-in-which-Mr.-Kenney-resides,-the-state-government-of-Vermont,-and-
the-U.S.-government-have-jurisdiction-to-tax-Mr.-Kenney.-The-local-governments-of-the-four-
counties-in-which-JK-Services-conducts-business,-the-state-government-of-Vermont,-and-the-U.S.-
government-have-jurisdiction-to-tax-JK-Services.-The-city-of-Boston,-the-state-government-of-
Massachusetts,-and-the-U.S.-government-have-jurisdiction-to-tax-JK-Realty.-
-
2. a.-The-United-States-has-jurisdiction-to-tax-Mrs.-May-because-she-is-a-permanent-resident.--
-
b. The-United-States-has-jurisdiction-to-tax-Mrs.-May-only-on-the-U.S.-source-rental-income-generated-
by-the-Manhattan-real-estate.--
-
c. The-United-States-does-not-have-jurisdiction-to-tax-Mrs.-May.--
-
d. The-United-States-has-jurisdiction-to-tax-Mrs.-May-because-she-is-a-U.S.-citizen.--3.- a.-The-
United-States-has-jurisdiction-to-tax-Mr.-Tompkin-because-he-is-a-U.S-citizen.--
-
b. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-only-on-the-U.S.-source-rental-income-
generated-by-the-Buffalo-real-estate.--
-
c. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-because-he-is-a-permanent-resident.--
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
1-2
,-
d. The-United-States-has-jurisdiction-to-tax-Mr.-Tompkin-on-his-share-of-the-U.S.-source-business-
income-generated-by-Sophic-Partnership.---
4.- State-A:-
- - Volume-of-sales-before-rate-increase- $800,000,000-
- - Original-tax-rate- ------.05-
- - Revenue-before-rate-increase- $40,000,000-
-
- - Volume-of-sales-after-rate-increase- $710,000,000-
- - New-tax-rate- ------.06-
- - Revenue-after-rate-increase- $42,600,000-
-
- - Additional-revenue-($42,600,000- -$40,000,000)- $2,600,000-
-
- State-Z:-
- - Volume-of-sales-added-to-tax-base- $50,000,000-
- - Tax-rate- -----.05-
- - Additional-revenue- $2,500,000-
-
5. a.-The-property-tax-is-$8,300-($415,000- -2%).-
-
b. The-property-tax-is-$19,000-([$500,000- -2%]-+-[$225,000- -4%]).-
-
6. a.-The-property-tax-is-$39,000-($1.3-million- -3%).-
- -
b. The-property-tax-is-$85,000-([$2-million- -3%]-+-[$2.5-million- -1%]).-
-
7. Increase-in-County-G‘s-aggregate-assessed-property-tax-value- $23,000,000-
- Assessed-value-of-Lexon‘s-new-facility- (20,000,000)-
- Net-increase-in-County-G‘s-tax-base- -$3,000,000-
- Tax-rate- - ----.04-
- Net-effect-on-County-G‘s-current-year-revenue- - $120,000-
-
8. a.-Value-of-property-purchased-in-State-K- $600,000-
- - Use-tax-rate-in-State-H- ---.06-
- - Pre-credit-use-tax- $36,000-
- - Sales-tax-paid-to-State-K- (18,000)-
- - Use-tax-owed-to-State-H- $18,000-
-
b. Value-of-property-purchased-in-State-L- $750,000-
- - Use-tax-rate-in-State-H- ---.06-
- - Pre-credit-use-tax- $45,000-
- - Sales-tax-paid-to-State-L- (48,750)-
- - Use-tax-owed-to-State-H- -0--
-
9. a.-Value-of-property-purchased-in-State-B- $90,000-
- - Use-tax-rate-in-State-V- ---.05-
- - Pre-credit-use-tax- $4,500-
- - Sales-tax-paid-to-State-B- (5,400)-
- - Use-tax-owed-to-State-V- -0--
-
b. Value-of-property-purchased-in-State-D- $200,000-
- - Use-tax-rate-in-State-V- ---.05-
- - Pre-credit-use-tax- $10,000-
- - Sales-tax-paid-to-State-D- (7,000)-
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
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, - - Use-tax-owed-to-State-V- $3,000-
-
10. a.-Mrs.-Doyle-owes-$658-Rhode-Island-use-tax-($9,400- -7%).--
-
b. Mrs.-Doyle-owes-no-Rhode-Island-use-tax-because-her-$823-New-York-sales-tax-($9,400- -
8.75%)-exceeds-$658.--
-
c. Mrs.-Doyle-owes-$188-Rhode-Island-use-tax-($658-–-$470-credit-for-Wisconsin-sales-tax-
[$9,400- -5%]).-
-
11. a.-Ms.-Pike-owes-$1,500-California-use-tax-($20,000- -7.5%).--
-
b. Ms.-Pike-owes-$475-California-use-tax-($1,500-–-$1,025-credit-for-New-Mexico-sales-tax-
[$20,000- -5.125%]).-
-
12. a.-State-R-residents-who-purchase-property-out-of-state-(i.e.,-through-the-mail)-but-use-and-
consume-the-property-in-State-R-owe-the-6-percent-use-tax.--
-
b. The-fact-that-Correll-must-collect-the-State-R-use-tax-does-not-affect-the-legal-liability-of-State-R-
residents-to-pay-the-tax.-However,-very-few-people-actually-pay-a-self-assessed-use-tax.-Thus,-
State-R-might-collect-as-much-as-$1,080,000-additional-revenue-(6-percent-of-$18-million-sales-to-
State-R-customers)-if-Correll-was-required-to-collect-use-tax-at-point-of-sale-and-remit-the-tax-to-
State-R.-
-
13. a.-Mr.-and-Mrs.-Underhill-aren‘t-required-to-pay-sales-tax-on-the-purchase-of-inventory-goods-
because-they-aren‘t-the-final-consumers-of-the-goods.-The-hardware-store‘s-retail-customers-
must-pay-the-sales-tax-when-they-purchase-goods.-Mr.-and-Mrs.-Underhill-are-required-to-
collect-this-tax-at-point-of-sale.-
-
b. Mr.-and-Mrs.-Underhill-should-time-their-purchases-to-minimize-their-inventory-on-hand-as-of-
December-31-of-each-year,-thereby-minimizing-the-book-value-on-which-the-personal-property-tax-
is-based.-
-
14. Querrey-Inc.:-
- - Sales-revenue-($9- -12.4-million-units)- $111,600,000-
- - Cost-of-sales-($6- -12.4-million-units)- (74,400,000)-
- - Value-added-by-Querrey-Inc.- $37,200,000-
- - Tax-rate- ------.03-
- - VAT- $1,116,000-
-
- Ronno-Inc.:-
- - Sales-revenue-($10- -12.4-million-units)- $124,000,000-
- - Material-cost-of-sales-($9- -12.4-million-units)- (111,600,000)-
- - Value-added-by-Ronno-Inc.- $12,400,000-
- - Tax-rate- ----.03-
- - VAT- $372,000-
-
15.-Sales-revenue-($7.50- -8.3-million-units)- $62,250,000-
- Material-cost-of-sales-($5- -8.3-million-units)- ($41,500,000)-
- Value-added-by-Wallis-Company- $20,750,000-
- Tax-rate- -----.15-
- VAT- $3,112,500-
-
-
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distribution without the prior written consent of McGraw-Hill Education.
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