Solution manual for McGraw-Hill’s Taxation of
Individuals and Business Entities 20 th Edition by
Brian C. Spilker and Benjamin C. Ayers, covering
chapters 1 through 14. It includes detailed, step-
by-step solutions
PART I: INTRODUCTION TO TAXATION
Questions 1–40
1. Which of the following best defines a tax?
A. A voluntary payment to the government for specific services
rendered
B. A mandatory payment to the government for which no direct
benefit is received
C. A fee charged by a private entity for public services
D. A penalty imposed for violating government regulations
Rationale: A tax is defined as a mandatory payment to a
government for which no direct, specific benefit is received in return.
This distinguishes taxes from fees (which provide direct benefits) and
penalties (which punish violations) .
2. The city of Springfield imposes a tax on the value of all real property
within its borders. This is best classified as:
, A. An income tax
B. A consumption tax
C. An ad valorem tax
D. A use tax
Rationale: An ad valorem tax is a tax based on the fair market
value of property. Real property taxes are the classic example .
3. Which criterion of a good tax system is violated when taxpayers must
spend significant time and money to determine their tax liability?
A. Sufficiency
B. Equity
C. Certainty
D. Economy
Rationale: The economy criterion considers both the
government's and taxpayers' costs of administering and complying with
the tax system. High compliance costs (record-keeping, professional
fees) violate the economy criterion from the taxpayer's perspective .
4. A tax rate structure where the average tax rate increases as the tax
base increases is called:
A. Proportional
B. Regressive
C. Progressive
D. Flat
, Rationale: A progressive rate structure is characterized by
average tax rates that increase as the tax base increases. The U.S.
federal income tax is an example .
5. Which of the following is an example of a "sin tax"?
A. Federal income tax
B. State sales tax on groceries
C. Excise tax on cigarettes
D. Property tax on residential homes
Rationale: An excise tax on cigarettes is both an excise tax
(based on quantity purchased) and a "sin" tax (on goods deemed
socially undesirable). Georgia's cigarette tax increase is a classic
example .
6. SATA — Which of the following are characteristics of a use tax?
(Select all that apply.)
A. It is imposed on goods owned or consumed within a state
that were not purchased in that state.
B. It is imposed on retail sales of goods within a state.
C. It often applies to goods purchased over the internet.
D. It is an ad valorem tax.
Rationale: A use tax applies to the retail price of goods owned,
possessed, or consumed within a state that were not purchased within
that state (e.g., internet purchases). Sales tax, not use tax, applies to in-
state retail sales. Use taxes are typically based on value, making them
ad valorem in nature .
, 7. Benjamin buys a truck in Alabama for his business in Georgia. Which
taxes may affect this transaction?
A. Alabama sales tax only
B. Georgia use tax only
C. Alabama sales tax, Georgia use tax, and Georgia personal
property tax
D. Federal excise tax only
Rationale: Benjamin will pay Alabama sales tax at purchase.
When registering in Georgia, he may owe Georgia use tax on any
difference. He will also pay annual Georgia personal property tax on the
truck. Additionally, he can depreciate the truck for federal income tax
purposes .
8. Which forecasting method ignores how taxpayers may alter their
behavior in response to a tax law change?
A. Dynamic forecasting
B. Static forecasting
C. Behavioral forecasting
D. Elastic forecasting
Rationale: Static forecasting assumes taxpayers do not change
their behavior in response to tax law changes. Dynamic forecasting
incorporates behavioral responses (income and substitution effects) .
9. The substitution effect suggests that when taxes increase:
Individuals and Business Entities 20 th Edition by
Brian C. Spilker and Benjamin C. Ayers, covering
chapters 1 through 14. It includes detailed, step-
by-step solutions
PART I: INTRODUCTION TO TAXATION
Questions 1–40
1. Which of the following best defines a tax?
A. A voluntary payment to the government for specific services
rendered
B. A mandatory payment to the government for which no direct
benefit is received
C. A fee charged by a private entity for public services
D. A penalty imposed for violating government regulations
Rationale: A tax is defined as a mandatory payment to a
government for which no direct, specific benefit is received in return.
This distinguishes taxes from fees (which provide direct benefits) and
penalties (which punish violations) .
2. The city of Springfield imposes a tax on the value of all real property
within its borders. This is best classified as:
, A. An income tax
B. A consumption tax
C. An ad valorem tax
D. A use tax
Rationale: An ad valorem tax is a tax based on the fair market
value of property. Real property taxes are the classic example .
3. Which criterion of a good tax system is violated when taxpayers must
spend significant time and money to determine their tax liability?
A. Sufficiency
B. Equity
C. Certainty
D. Economy
Rationale: The economy criterion considers both the
government's and taxpayers' costs of administering and complying with
the tax system. High compliance costs (record-keeping, professional
fees) violate the economy criterion from the taxpayer's perspective .
4. A tax rate structure where the average tax rate increases as the tax
base increases is called:
A. Proportional
B. Regressive
C. Progressive
D. Flat
, Rationale: A progressive rate structure is characterized by
average tax rates that increase as the tax base increases. The U.S.
federal income tax is an example .
5. Which of the following is an example of a "sin tax"?
A. Federal income tax
B. State sales tax on groceries
C. Excise tax on cigarettes
D. Property tax on residential homes
Rationale: An excise tax on cigarettes is both an excise tax
(based on quantity purchased) and a "sin" tax (on goods deemed
socially undesirable). Georgia's cigarette tax increase is a classic
example .
6. SATA — Which of the following are characteristics of a use tax?
(Select all that apply.)
A. It is imposed on goods owned or consumed within a state
that were not purchased in that state.
B. It is imposed on retail sales of goods within a state.
C. It often applies to goods purchased over the internet.
D. It is an ad valorem tax.
Rationale: A use tax applies to the retail price of goods owned,
possessed, or consumed within a state that were not purchased within
that state (e.g., internet purchases). Sales tax, not use tax, applies to in-
state retail sales. Use taxes are typically based on value, making them
ad valorem in nature .
, 7. Benjamin buys a truck in Alabama for his business in Georgia. Which
taxes may affect this transaction?
A. Alabama sales tax only
B. Georgia use tax only
C. Alabama sales tax, Georgia use tax, and Georgia personal
property tax
D. Federal excise tax only
Rationale: Benjamin will pay Alabama sales tax at purchase.
When registering in Georgia, he may owe Georgia use tax on any
difference. He will also pay annual Georgia personal property tax on the
truck. Additionally, he can depreciate the truck for federal income tax
purposes .
8. Which forecasting method ignores how taxpayers may alter their
behavior in response to a tax law change?
A. Dynamic forecasting
B. Static forecasting
C. Behavioral forecasting
D. Elastic forecasting
Rationale: Static forecasting assumes taxpayers do not change
their behavior in response to tax law changes. Dynamic forecasting
incorporates behavioral responses (income and substitution effects) .
9. The substitution effect suggests that when taxes increase:
