Test Bank for Principles of Taxation for Business and Investment Planning 2025 Evergreen Release By Sally Jones, Shelley Rhoades-Catanach

SOLUTION MANUAL FOR r r




PrinciplesofTaxationforBusinessandInvestmentPlanning202023rdEditionby r r r r r r




SallyJones,ShelleyRhoades Catanach
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Chapter1TaxesandTaxingJurisdictions r r r r




Questionsand ProblemsforDiscussion r r




1. Taxpaymentsdifferfromgovernmentfinesandpenaltiesbecausetheyaren‘tintendedto deter
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rorpunishunacceptablebehavior.Taxpaymentsdifferfromfeesorusercharges because
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rtheydon‘tentitlethepayertoaspecificgovernmentgoodorservice,suchasa postagestamp
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roradriver‘slicense.Taxpaymentsalsodifferfromfeesorusercharges because they are
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rcompulsory.

2. Thispaymenthascharacteristicsofatax,apenalty,andauserfee.Thecompulsorypayment is not
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rspecificallypunitivebutdoesapplyselectivelytothosecompaniesmostlikely responsiblefor the r r r r r r r r r r r r r




rpollutedconditionofGreenRiver.However,thesesamecompaniesmay betheentitiesthat benefit
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rmost from the environmental clean-up. r r r r




3. Thispaymentmorecloselyresemblesafeeforagovernmentservicethanatransaction-basedtax
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rbecausethetransactionoccursbetweenaprivatepartyandthejurisdictionitself,rather thanr r r r r r r r r r r r r r




rbetweenprivatepartiesengaginginamarkettransaction.Thepaymentalsoentitlesthepayertoa
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rspecific benefit (the right to marry under law). r r r r r r r




4. TotheextentthatthedeclineinexteriormaintenancereducesthevalueofMr.Powell‘s apartment
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rcomplex,hebearstheincidenceoftheincreasedpropertytax.Totheextentthatthe declinereduces r r r r r r r r r r r r r r r r




rthevalueofadjoiningpropertiesormakestheneighborhoodlessattractive,the ownersoftheadjoining
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rpropertiesandtheneighborhoodresidentssharetheincidenceofthe taxincrease. r r r r r r r r r r r




5. Peoplewhodon‘tdirectlyusepublicschools(suchasMr.andMrs.Ahernorpeoplewhodon‘thave
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rchildren)indirectlybenefitfromapubliceducationsystemforthegeneralpopulation.Arguably, public
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educationcontributestoaskilledworkforceandimprovestheculturalandsocial environmentinwhich
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Mr.andMrs.Ahernlive.Basedonthisargument,Mr.andMrs.Ahernshould not be exempt from the local
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rproperty tax. r




6. Theconsumerswhopaythesamepriceforasmallerbarofsoapoflesserqualitybearthe
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rincidence of the new gross receipts tax. r r r r r r




7. Realpropertycan‘t behiddenormoved,anditsownership(legaltitle)isamatter ofpublic
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rrecord.Incontrast,personalpropertyismobileandmaybeeasilyconcealed.Moreover,
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rjurisdictionsmaynothaveaneffectivemeanstodiscoverortraceownershipofpersonal r r r r r r r r r r r r r




rproperty.

8. Arguably,privategolfcoursesbeautifythelocalityandareenvironmentallymoredesirable than r r r r r r r r r r r r




rothercommercialactivities.Theyalsomayrequiremoreacreagethanotherbusinessesand,
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rtherefore, would be at a competitive disadvantage without a preferential real propertytax rate. r r r r r r r r r r r r r




9. Manyjurisdictionsthatlevypropertytaxesprovideanexemptionforpublicinstitutions,suchas state
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universitiesorprivatecolleges.IfUniversityKisentitledtosuchanexemption,every commercial
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buildingorresidenceacquiredbytheUniversityreducesthelocaljurisdiction‘s propertytaxbase.
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,10. Excise taxes are imposed on a much narrower range of consumer goods and services than sales
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taxes. Consequently, people can more readily avoid purchasing the specific good or service
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subject to excise tax.
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11. Thetaxincreasemayhavereducedtheaggregatedemandforconsumergoodsand,
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consequently,municipal residentsarebuyingfewergoods.A secondpossibilityisthat
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municipalresidentsaretravelingtootherjurisdictionswithlowertaxratesormakingmore
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purchases through mail order catalogs or on-line.
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12. Fromapoliticalperspective,liquorandcigarettessalesmakeanexcellenttaxbasebecause
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consumptionofthetwoproductsispurelydiscretionary,andanydeclineinconsumption becauseof
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thetaxissociallydesirable.Fromaneconomicperspective,thesesalesareagood tax base
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becausethedemandforliquor andcigarettesisrelatively priceinelastic.Inother words,people
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whodrinkandsmokeonaregularbasisbuytheseproductsregardlessofaheavy excisetax.
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13. Thefederalincomehasthebroaderbase.Thefederalpayrolltaxisimposedonwages, salaries, and
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otherformsofcompensationearnedbyemployees.Thefederalincometaxisimposedon alltypesof
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compensationaswellasnetbusinessprofit,investmentincome,andanyother income item from
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whatever source derived.
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14. Aproperty tax is a periodic (usually annual) tax levied on the ownership of property and basedonthe
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valueofthepropertyonaparticularassessmentdate.Atransfertaxisa transaction-basedtaxlevied
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onthetransferofpropertyfromonepartytoanother.Atransfertaxisbasedonthevalueoftheproperty
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atdateoftransfer.
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15. Ifthefederalgovernmentcould―piggyback‖anationalsalestaxonexistingstatesalestax collection
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systems,thefederalgovernmentcouldavoidcreatinganewfederalagencyfor collectingthetax.In
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contrast,thefederalgovernmentwouldhavetocreateanewcollection systemforanationalVAT.
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However,anationalVATwouldbelesslikelytocausejurisdictional conflictbetweenthefederal
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governmentandthestatesbecausestatesdon‘tdependonVATs as a source of revenue.
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16. TheInternalRevenueCodeisfederalstatutorylaw,enactedbyCongressandsignedbythe President.
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Technically,Treasuryregulationsonlyinterpretandexplainthestatuteandaren‘tlaws intheirown
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right.Thus,regulationsarelessauthoritativethantheCodeitself.However,because Congress
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authorizedtheTreasurytowriteregulations,theyarethegovernment‘sofficial interpretationof
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statutory law.Practically,theregulationscarryconsiderableauthoritativeweight.
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Application Problems r




1. a. Thestatementoffactsidentifiesthreetaxpayers:Mr.JoshKenney,JKServices,andJK
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Realty.
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b. ThegovernmentofthelocalityinwhichMr.Kenneyresides,thestategovernmentof
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Vermont,andtheU.S.governmenthavejurisdictiontotaxMr.Kenney.Thelocal
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governmentsofthefourcountiesinwhichJK Servicesconductsbusiness,thestate
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governmentofVermont,andtheU.S.governmenthavejurisdictiontotaxJKServices.The
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cityofBoston,thestategovernmentofMassachusetts,andtheU.S.government have
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jurisdiction to tax JK Realty.
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2. a. TheUnitedStateshasjurisdictiontotaxMrs.Maybecausesheisapermanentresident.
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b. TheUnitedStateshasjurisdictiontotaxMrs.MayonlyontheU.S.sourcerental
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income generated by the Manhattan real estate.
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, c. TheUnitedStatesdoesnot havejurisdictiontotax Mrs.May.
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d. TheUnitedStateshasjurisdictiontotaxMrs.MaybecausesheisaU.S.citizen.
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3. a. TheUnitedStateshasjurisdictiontotaxMr.TompkinbecauseheisaU.Scitizen.
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b. TheUnitedStateshasjurisdictiontotaxMr.TompkinonlyontheU.S.sourcerental
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income generated by the Buffalo real estate.
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c. TheUnitedStateshasjurisdictiontotax Mr.Tompkinbecauseheisapermanent resident.
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d. TheUnitedStateshasjurisdictiontotaxMr.TompkinonhisshareoftheU.S.
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source business income generated by Sophic Partnership.
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4. StateA: r




Volumeof salesbeforerateincrease r r r r r $800,000,000
Originaltaxrate r r .05
Revenuebeforerateincrease r r r $40,000,000

Volumeofsalesafter rateincrease r r r r r $710,000,000
Newtax rate r r .06
Revenueafterrateincrease r r r $42,600,000

Additionalrevenue($42,600,000−$40,000,000) r r r $2,600,000

StateZ: r




Volumeofsalesaddedtotax base r r r r r r $50,000,000
Tax rate r .05
Additional revenue r $2,500,000


5. a. Thepropertytaxis$8,300($415,0002%).
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b. Thepropertytax is$19,000([$500,000  2%]+[$225,000 4%]).
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6. a. Thepropertytaxis$39,000($1.3million3%).
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b. Thepropertytaxis$85,000([$2million3%]+[$2.5million1%]).
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7. Increase in County G‘s aggregate assessed property tax value
r r r r r r r r $23,000,000
rAssessedvalueofLexon‘snewfacility r r r r r (20,000,000)
Net increase in County G‘s tax base
r r r r r r $3,000,000
rTaxrate r




.04
Neteffect onCountyG‘scurrentyear revenue
r r r r r r r $120,000

8. a. Value of property purchased in State K r r r r r r $600,000
Use tax rate in State H
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.06
Precredit usetax r r r $36,000
Salestax paidtoStateK r r r r r (18,000)
Usetax owedtoStateH r r r r r $18,000

b. Value of property purchased in State L r r r r r r $750,000
Use tax rate in State H
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.06
Copyright©2020McGraw-HillEducation. Allrightsreserved. r r r r r r




Noreproductionordistributionwithoutthepriorwrittenconsent ofMcGraw-Hill
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, Precredit usetax
r r r $45,000
Salestax paidtoStateL
r r r r r (48,750)
Usetax owedtoStateH
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Copyright©2020McGraw-HillEducation. Allrightsreserved.
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Noreproductionordistributionwithoutthepriorwrittenconsent ofMcGraw-Hill
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Education. r