SOLUTION MANUAL FOR f f
Principles of Taxation for Business and Investment Planning 2023
f f f f f f f f
ff Edition 26th Edition by Sally M. Jones
f f f f f f
FULL TEST BANK!!!f f
,Chapterf1fTaxesfandfTaxingfJurisdictions
QuestionsfandfProblemsfforfDiscussion
1. Taxfpaymentsfdifferffromfgovernmentffinesfandfpenaltiesfbecauseftheyfaren‘tfintendedftofdeterforfp
unishfunacceptablefbehavior.fTaxfpaymentsfdifferffromffeesforfuserfchargesfbecauseftheyfdon‘tfe
ntitlefthefpayerftofafspecificfgovernmentfgoodforfservice,fsuchfasfafpostagefstampforfafdriver‘sflice
nse.fTaxfpaymentsfalsofdifferffromffeesforfuserfchargesfbecauseftheyfarefcompulsory.
2. Thisfpaymentfhasfcharacteristicsfoffaftax,fafpenalty,fandfafuserffee.fThefcompulsoryfpaymentfisfnotfs
pecificallyfpunitivefbutfdoesfapplyfselectivelyftofthosefcompaniesfmostflikelyfresponsiblefforfthefpollu
tedfconditionfoffGreenfRiver.fHowever,fthesefsamefcompaniesfmayfbefthefentitiesfthatfbenefitfmostf
fromfthefenvironmentalfclean-up.
3. Thisfpaymentfmorefcloselyfresemblesfaffeefforfafgovernmentfservicefthanfaftransaction-
basedftaxfbecauseftheftransactionfoccursfbetweenfafprivatefpartyfandfthefjurisdictionfitself,fratherfth
anfbetweenfprivatefpartiesfengagingfinfafmarketftransaction.fThefpaymentfalsofentitlesfthefpayerftofa
fspecificfbenefitf(thefrightftofmarryfunderflaw).
4. TofthefextentfthatfthefdeclinefinfexteriorfmaintenancefreducesfthefvaluefoffMr.fPowell‘sfapartmentfco
mplex,fhefbearsfthefincidencefoffthefincreasedfpropertyftax.fTofthefextentfthatfthefdeclinefreducesfth
efvaluefoffadjoiningfpropertiesforfmakesfthefneighborhoodflessfattractive,fthefownersfoffthefadjoinin
gfpropertiesfandfthefneighborhoodfresidentsfsharefthefincidencefofftheftaxfincrease.
5. Peoplefwhofdon‘tfdirectlyfusefpublicfschoolsf(suchfasfMr.fandfMrs.fAhernforfpeoplefwhofdon‘tfhavefc
hildren)findirectlyfbenefitffromfafpublicfeducationfsystemfforfthefgeneralfpopulation.fArguably,fpublic
feducationfcontributesftofafskilledfworkforcefandfimprovesfthefculturalfandfsocial fenvironmentfinfwhic
hfMr.fandfMrs.fAhernflive.fBasedfonfthisfargument,fMr.fandfMrs.fAhernfshouldfnotfbefexemptffromfth
eflocalfpropertyftax.
6. Thefconsumersfwhofpayfthefsamefpricefforfafsmallerfbarfoffsoapfofflesserfqualityfbearfthefincid
encefoffthefnewfgrossfreceiptsftax.
7. Realfpropertyfcan‘tfbefhiddenforfmoved,fandfitsfownershipf(legalftitle)fisfafmatterfoffpublicfreco
rd.fInfcontrast,fpersonalfpropertyfisfmobilefandfmayfbefeasilyfconcealed.fMoreover,fjurisdicti
onsfmayfnotfhavefanfeffectivefmeansftofdiscoverforftracefownershipfoffpersonalfproperty.
8. Arguably,fprivatefgolffcoursesfbeautifyftheflocalityfandfarefenvironmentallyfmorefdesirablefthanfoth
erfcommercialfactivities.fTheyfalsofmayfrequirefmorefacreagefthanfotherfbusinessesfand,ftherefor
e,fwouldfbefatfafcompetitivefdisadvantagefwithoutfafpreferentialfrealfpropertyftaxfrate.
9. Manyfjurisdictionsfthatflevyfpropertyftaxesfprovidefanfexemptionfforfpublicfinstitutions,fsuchfasfstat
efuniversitiesforfprivatefcolleges.fIffUniversityfKfisfentitledftofsuchfanfexemption,feveryfcommercia
lfbuildingforfresidencefacquiredfbyfthefUniversityfreducesftheflocalfjurisdiction‘sfpropertyftaxfbase.
10. Exciseftaxesfarefimposedfonfafmuchfnarrowerfrangefoffconsumerfgoodsfandfservicesfthanfsale
sftaxes.fConsequently,fpeoplefcanfmorefreadilyfavoidfpurchasingfthefspecificfgoodforfservicef
subjectftofexciseftax.
,11. Theftaxfincreasefmayfhavefreducedfthefaggregatefdemandfforfconsumerfgoodsfand,fconsequently,
fmunicipalfresidentsfarefbuyingffewerfgoods.fAfsecondfpossibilityfisfthatfmunicipal fresidentsfareftrav
elingftofotherfjurisdictionsfwithflowerftaxfratesforfmakingfmorefpurchasesfthroughfmailforderfcatalog
sforfon-line.
12. Fromfafpoliticalfperspective,fliquorfandfcigarettesfsalesfmakefanfexcellentftaxfbasefbecausefconsu
mptionfofftheftwofproductsfisfpurelyfdiscretionary,fandfanyfdeclinefinfconsumptionfbecausefoffthefta
xfisfsociallyfdesirable.fFromfanfeconomicfperspective,fthesefsalesfarefafgoodftaxfbasefbecausefthef
demandfforfliquorfandfcigarettesfisfrelativelyfpricefinelastic.fInfotherfwords,fpeoplefwhofdrinkfandfsm
okefonfafregularfbasisfbuyfthesefproductsfregardlessfoffafheavyfexciseftax.
13. Theffederalfincomef taxfhasfthefbroaderfbase.fTheffederalfpayrollftaxfisfimposedfonfwages,fsalar
ies,fandfotherfformsfoffcompensationfearnedfbyfemployees.fTheffederalfincomeftaxfisfimposedf
onfallftypesfoffcompensationfasfwellfasfnetfbusinessfprofit,finvestmentfincome,fandfanyfotherfinc
omefitemffromfwhateverfsourcefderived.
14. Afpropertyftaxfisfafperiodicf(usuallyfannual)ftaxfleviedfonfthefownershipfoffpropertyfandfbasedfonfthe
fvaluefoffthefpropertyfonfafparticularfassessmentfdate.fAftransferftaxfisfaftransaction-
fbasedftaxfleviedfonftheftransferfoffpropertyffromfonefparty ftofanother.fAftransferftaxfisfbasedfonfthefv
aluefoffthefpropertyfatfdatefofftransfer.
15. Ifftheffederalfgovernmentfcouldf―piggyfback‖fafnationalfsalesftaxfonfexistingfstatefsalesftaxfcollecti
onfsystems,ftheffederalfgovernmentfcouldfavoidfcreatingfafnewffederalfagencyfforfcollectingfthefta
x.fInfcontrast,ftheffederalfgovernmentfwouldfhaveftofcreatefafnewfcollectionfsystemfforfafnationalfV
AT.fHowever,fafnationalfVATfwouldfbeflessflikelyftofcausefjurisdictionalfconflictfbetweenftheffedera
lfgovernmentfandfthefstatesfbecausefstatesfdon‘tfdependfonfVATsfasfafsourcefoffrevenue.
16. ThefInternalfRevenuefCodefisffederalfstatutoryflaw,fenactedfbyfCongressfandfsignedfbyfthefPresid
ent.fTechnically,fTreasuryfregulationsfonlyfinterpretfandfexplainfthefstatutefandfaren‘tflawsfinftheirfo
wnfright.fThus,fregulationsfareflessfauthoritativefthanfthefCodefitself.fHowever,fbecausefCongressf
authorizedfthefTreasuryftofwritefregulations,ftheyfarefthefgovernment‘sfofficialfinterpretationfoffstat
utoryflaw.fPractically,fthefregulationsfcarryfconsiderablefauthoritativefweight.
ApplicationfProblems
1. a.f Thefstatementfofffactsfidentifiesfthreeftaxpayers:fMr.fJoshfKenney,fJKfServices,fandfJKfRea
lty.
b. ThefgovernmentfofftheflocalityfinfwhichfMr.fKenneyfresides,fthefstatefgovernmentfoffVermont,f
andfthefU.S.fgovernmentfhavefjurisdictionftoftaxfMr.fKenney.fTheflocalfgovernmentsfofftheffou
rfcountiesfinfwhichfJKfServicesfconductsfbusiness,fthefstatefgovernmentfoffVermont,fandfthef
U.S.fgovernmentfhavefjurisdictionftoftaxfJKfServices.fThefcityfoffBoston,fthefstatefgovernmentf
offMassachusetts,fandfthefU.S.fgovernmentfhavefjurisdictionftoftaxfJKfRealty.
2. a.f f ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfbecausefshefisfafpermanentfresident.
b. ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfonlyfonfthefU.S.fsourcefrentalfincomefgen
eratedfbyfthefManhattanfrealfestate.
c. ThefUnitedfStatesfdoesfnotfhavefjurisdictionftoftaxfMrs.fMay.
d. ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfbecausefshefisfafU.S.fcitizen.
, 3. a.f f ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfbecausefhefisfafU.Sfcitizen.
b. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfonlyfonfthefU.S.fsourcefrentalfincomefgen
eratedfbyfthefBuffalofrealfestate.
c. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfbecausefhefisfafpermanentfresident.
d. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfonfhisfsharefoffthefU.S.fsourcefbusi
nessfincomefgeneratedfbyfSophicfPartnership.
4. StatefA:
Volumefoffsalesfbeforefratefincrease $800,000,000
Originalftaxfrate .05
Revenuefbeforefratefincrease $40,000,000
Volumefoffsalesfafterfratefincrease $710,000,000
Newftaxfrate .06
Revenuefafterfratefincrease $42,600,000
Additionalfrevenuef($42,600,000ff$40,000,000) $2,600,000
StatefZ:
Volumefoffsalesfaddedftoftaxfbase $50,000,000
Taxfrate .05
Additionalfrevenue $2,500,000
5. a.f f Thefpropertyftaxfisf$8,300f($415,000ff2%).
b. Thefpropertyftaxfisf$19,000f([$500,000ff2%]f+f[$225,000ff4%]).
6. a.f f Thefpropertyftaxfisf$39,000f($1.3fmillionff3%).
b. Thefpropertyftaxfisf$85,000f([$2fmillionff3%]f+f[$2.5fmillionff1%]).
7. IncreasefinfCountyfG‘sfaggregatefassessedfpropertyftaxfvalue
$23,000,000f
AssessedfvaluefoffLexon‘sfnewffacility (20,000,000)
NetfincreasefinfCountyfG‘sftaxfbase
$3,000,000f
Taxfrate f .04
NetfeffectfonfCountyfG‘sfcurrentfyearfrevenue $120,000
8. a.f ValuefoffpropertyfpurchasedfinfStatefK
$600,000
UseftaxfratefinfStatefH
f f .06
Prefcreditfuseftax $36,000
SalesftaxfpaidftofStatefK (18,000)
UseftaxfowedftofStatefH $18,000
b. ValuefoffpropertyfpurchasedfinfStatefL
$750,000
UseftaxfratefinfStatefH
f f .06
Prefcreditfuseftax $45,000
SalesftaxfpaidftofStatefL (48,750)
UseftaxfowedftofStatefH -0-
Principles of Taxation for Business and Investment Planning 2023
f f f f f f f f
ff Edition 26th Edition by Sally M. Jones
f f f f f f
FULL TEST BANK!!!f f
,Chapterf1fTaxesfandfTaxingfJurisdictions
QuestionsfandfProblemsfforfDiscussion
1. Taxfpaymentsfdifferffromfgovernmentffinesfandfpenaltiesfbecauseftheyfaren‘tfintendedftofdeterforfp
unishfunacceptablefbehavior.fTaxfpaymentsfdifferffromffeesforfuserfchargesfbecauseftheyfdon‘tfe
ntitlefthefpayerftofafspecificfgovernmentfgoodforfservice,fsuchfasfafpostagefstampforfafdriver‘sflice
nse.fTaxfpaymentsfalsofdifferffromffeesforfuserfchargesfbecauseftheyfarefcompulsory.
2. Thisfpaymentfhasfcharacteristicsfoffaftax,fafpenalty,fandfafuserffee.fThefcompulsoryfpaymentfisfnotfs
pecificallyfpunitivefbutfdoesfapplyfselectivelyftofthosefcompaniesfmostflikelyfresponsiblefforfthefpollu
tedfconditionfoffGreenfRiver.fHowever,fthesefsamefcompaniesfmayfbefthefentitiesfthatfbenefitfmostf
fromfthefenvironmentalfclean-up.
3. Thisfpaymentfmorefcloselyfresemblesfaffeefforfafgovernmentfservicefthanfaftransaction-
basedftaxfbecauseftheftransactionfoccursfbetweenfafprivatefpartyfandfthefjurisdictionfitself,fratherfth
anfbetweenfprivatefpartiesfengagingfinfafmarketftransaction.fThefpaymentfalsofentitlesfthefpayerftofa
fspecificfbenefitf(thefrightftofmarryfunderflaw).
4. TofthefextentfthatfthefdeclinefinfexteriorfmaintenancefreducesfthefvaluefoffMr.fPowell‘sfapartmentfco
mplex,fhefbearsfthefincidencefoffthefincreasedfpropertyftax.fTofthefextentfthatfthefdeclinefreducesfth
efvaluefoffadjoiningfpropertiesforfmakesfthefneighborhoodflessfattractive,fthefownersfoffthefadjoinin
gfpropertiesfandfthefneighborhoodfresidentsfsharefthefincidencefofftheftaxfincrease.
5. Peoplefwhofdon‘tfdirectlyfusefpublicfschoolsf(suchfasfMr.fandfMrs.fAhernforfpeoplefwhofdon‘tfhavefc
hildren)findirectlyfbenefitffromfafpublicfeducationfsystemfforfthefgeneralfpopulation.fArguably,fpublic
feducationfcontributesftofafskilledfworkforcefandfimprovesfthefculturalfandfsocial fenvironmentfinfwhic
hfMr.fandfMrs.fAhernflive.fBasedfonfthisfargument,fMr.fandfMrs.fAhernfshouldfnotfbefexemptffromfth
eflocalfpropertyftax.
6. Thefconsumersfwhofpayfthefsamefpricefforfafsmallerfbarfoffsoapfofflesserfqualityfbearfthefincid
encefoffthefnewfgrossfreceiptsftax.
7. Realfpropertyfcan‘tfbefhiddenforfmoved,fandfitsfownershipf(legalftitle)fisfafmatterfoffpublicfreco
rd.fInfcontrast,fpersonalfpropertyfisfmobilefandfmayfbefeasilyfconcealed.fMoreover,fjurisdicti
onsfmayfnotfhavefanfeffectivefmeansftofdiscoverforftracefownershipfoffpersonalfproperty.
8. Arguably,fprivatefgolffcoursesfbeautifyftheflocalityfandfarefenvironmentallyfmorefdesirablefthanfoth
erfcommercialfactivities.fTheyfalsofmayfrequirefmorefacreagefthanfotherfbusinessesfand,ftherefor
e,fwouldfbefatfafcompetitivefdisadvantagefwithoutfafpreferentialfrealfpropertyftaxfrate.
9. Manyfjurisdictionsfthatflevyfpropertyftaxesfprovidefanfexemptionfforfpublicfinstitutions,fsuchfasfstat
efuniversitiesforfprivatefcolleges.fIffUniversityfKfisfentitledftofsuchfanfexemption,feveryfcommercia
lfbuildingforfresidencefacquiredfbyfthefUniversityfreducesftheflocalfjurisdiction‘sfpropertyftaxfbase.
10. Exciseftaxesfarefimposedfonfafmuchfnarrowerfrangefoffconsumerfgoodsfandfservicesfthanfsale
sftaxes.fConsequently,fpeoplefcanfmorefreadilyfavoidfpurchasingfthefspecificfgoodforfservicef
subjectftofexciseftax.
,11. Theftaxfincreasefmayfhavefreducedfthefaggregatefdemandfforfconsumerfgoodsfand,fconsequently,
fmunicipalfresidentsfarefbuyingffewerfgoods.fAfsecondfpossibilityfisfthatfmunicipal fresidentsfareftrav
elingftofotherfjurisdictionsfwithflowerftaxfratesforfmakingfmorefpurchasesfthroughfmailforderfcatalog
sforfon-line.
12. Fromfafpoliticalfperspective,fliquorfandfcigarettesfsalesfmakefanfexcellentftaxfbasefbecausefconsu
mptionfofftheftwofproductsfisfpurelyfdiscretionary,fandfanyfdeclinefinfconsumptionfbecausefoffthefta
xfisfsociallyfdesirable.fFromfanfeconomicfperspective,fthesefsalesfarefafgoodftaxfbasefbecausefthef
demandfforfliquorfandfcigarettesfisfrelativelyfpricefinelastic.fInfotherfwords,fpeoplefwhofdrinkfandfsm
okefonfafregularfbasisfbuyfthesefproductsfregardlessfoffafheavyfexciseftax.
13. Theffederalfincomef taxfhasfthefbroaderfbase.fTheffederalfpayrollftaxfisfimposedfonfwages,fsalar
ies,fandfotherfformsfoffcompensationfearnedfbyfemployees.fTheffederalfincomeftaxfisfimposedf
onfallftypesfoffcompensationfasfwellfasfnetfbusinessfprofit,finvestmentfincome,fandfanyfotherfinc
omefitemffromfwhateverfsourcefderived.
14. Afpropertyftaxfisfafperiodicf(usuallyfannual)ftaxfleviedfonfthefownershipfoffpropertyfandfbasedfonfthe
fvaluefoffthefpropertyfonfafparticularfassessmentfdate.fAftransferftaxfisfaftransaction-
fbasedftaxfleviedfonftheftransferfoffpropertyffromfonefparty ftofanother.fAftransferftaxfisfbasedfonfthefv
aluefoffthefpropertyfatfdatefofftransfer.
15. Ifftheffederalfgovernmentfcouldf―piggyfback‖fafnationalfsalesftaxfonfexistingfstatefsalesftaxfcollecti
onfsystems,ftheffederalfgovernmentfcouldfavoidfcreatingfafnewffederalfagencyfforfcollectingfthefta
x.fInfcontrast,ftheffederalfgovernmentfwouldfhaveftofcreatefafnewfcollectionfsystemfforfafnationalfV
AT.fHowever,fafnationalfVATfwouldfbeflessflikelyftofcausefjurisdictionalfconflictfbetweenftheffedera
lfgovernmentfandfthefstatesfbecausefstatesfdon‘tfdependfonfVATsfasfafsourcefoffrevenue.
16. ThefInternalfRevenuefCodefisffederalfstatutoryflaw,fenactedfbyfCongressfandfsignedfbyfthefPresid
ent.fTechnically,fTreasuryfregulationsfonlyfinterpretfandfexplainfthefstatutefandfaren‘tflawsfinftheirfo
wnfright.fThus,fregulationsfareflessfauthoritativefthanfthefCodefitself.fHowever,fbecausefCongressf
authorizedfthefTreasuryftofwritefregulations,ftheyfarefthefgovernment‘sfofficialfinterpretationfoffstat
utoryflaw.fPractically,fthefregulationsfcarryfconsiderablefauthoritativefweight.
ApplicationfProblems
1. a.f Thefstatementfofffactsfidentifiesfthreeftaxpayers:fMr.fJoshfKenney,fJKfServices,fandfJKfRea
lty.
b. ThefgovernmentfofftheflocalityfinfwhichfMr.fKenneyfresides,fthefstatefgovernmentfoffVermont,f
andfthefU.S.fgovernmentfhavefjurisdictionftoftaxfMr.fKenney.fTheflocalfgovernmentsfofftheffou
rfcountiesfinfwhichfJKfServicesfconductsfbusiness,fthefstatefgovernmentfoffVermont,fandfthef
U.S.fgovernmentfhavefjurisdictionftoftaxfJKfServices.fThefcityfoffBoston,fthefstatefgovernmentf
offMassachusetts,fandfthefU.S.fgovernmentfhavefjurisdictionftoftaxfJKfRealty.
2. a.f f ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfbecausefshefisfafpermanentfresident.
b. ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfonlyfonfthefU.S.fsourcefrentalfincomefgen
eratedfbyfthefManhattanfrealfestate.
c. ThefUnitedfStatesfdoesfnotfhavefjurisdictionftoftaxfMrs.fMay.
d. ThefUnitedfStatesfhasfjurisdictionftoftaxfMrs.fMayfbecausefshefisfafU.S.fcitizen.
, 3. a.f f ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfbecausefhefisfafU.Sfcitizen.
b. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfonlyfonfthefU.S.fsourcefrentalfincomefgen
eratedfbyfthefBuffalofrealfestate.
c. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfbecausefhefisfafpermanentfresident.
d. ThefUnitedfStatesfhasfjurisdictionftoftaxfMr.fTompkinfonfhisfsharefoffthefU.S.fsourcefbusi
nessfincomefgeneratedfbyfSophicfPartnership.
4. StatefA:
Volumefoffsalesfbeforefratefincrease $800,000,000
Originalftaxfrate .05
Revenuefbeforefratefincrease $40,000,000
Volumefoffsalesfafterfratefincrease $710,000,000
Newftaxfrate .06
Revenuefafterfratefincrease $42,600,000
Additionalfrevenuef($42,600,000ff$40,000,000) $2,600,000
StatefZ:
Volumefoffsalesfaddedftoftaxfbase $50,000,000
Taxfrate .05
Additionalfrevenue $2,500,000
5. a.f f Thefpropertyftaxfisf$8,300f($415,000ff2%).
b. Thefpropertyftaxfisf$19,000f([$500,000ff2%]f+f[$225,000ff4%]).
6. a.f f Thefpropertyftaxfisf$39,000f($1.3fmillionff3%).
b. Thefpropertyftaxfisf$85,000f([$2fmillionff3%]f+f[$2.5fmillionff1%]).
7. IncreasefinfCountyfG‘sfaggregatefassessedfpropertyftaxfvalue
$23,000,000f
AssessedfvaluefoffLexon‘sfnewffacility (20,000,000)
NetfincreasefinfCountyfG‘sftaxfbase
$3,000,000f
Taxfrate f .04
NetfeffectfonfCountyfG‘sfcurrentfyearfrevenue $120,000
8. a.f ValuefoffpropertyfpurchasedfinfStatefK
$600,000
UseftaxfratefinfStatefH
f f .06
Prefcreditfuseftax $36,000
SalesftaxfpaidftofStatefK (18,000)
UseftaxfowedftofStatefH $18,000
b. ValuefoffpropertyfpurchasedfinfStatefL
$750,000
UseftaxfratefinfStatefH
f f .06
Prefcreditfuseftax $45,000
SalesftaxfpaidftofStatefL (48,750)
UseftaxfowedftofStatefH -0-
