SOLUTION MANUAL FOR
Principles of Taxation for Business and Investment Planning 2025-26 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_be
cause_they_don‘t_entitle_the_payer_to_a_specific_government_good_or_service,_such_as_a_po
stage_stamp_or_a_driver‘s_license._Tax_payments_also_differ_from_fees_or_user_charges_bec
ause_they_are_compulsory.
2. This_payment_has_characteristics_of_a_tax,_a_penalty,_and_a_user_fee._The_compulsory_paym
ent_is_not_specifically_punitive_but_does_apply_selectively_to_those_companies_most_likely_res
ponsible_for_the_polluted_condition_of_Green_River._However,_these_same_companies_may_b
e_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_en
titles_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_ap
artment_complex,_he_bears_the_incidence_of_the_increased_property_tax._To_the_extent_that_t
he_decline_reduces_the_value_of_adjoining_properties_or_makes_the_neighborhood_less_attract
ive,_the_owners_of_the_adjoining_properties_and_the_neighborhood_residents_share_the_incide
nce_of_the_tax_increase.
5. People_who_don‘t_directly_use_public_schools_(such_as_Mr._and_Mrs._Ahern_or_people_who_d
on‘t_have_children)_indirectly_benefit_from_a_public_education_system_for_the_general_populati
on._Arguably,_public_education_contributes_to_a_skilled_workforce_and_improves_the_cultural_a
nd_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_be
ar_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_owners
hip_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_business
es_and,_therefore,_would_be_at_a_competitive_disadvantage_without_a_preferential_real_prop
erty_tax_rate.
9. Many_jurisdictions_that_levy_property_taxes_provide_an_exemption_for_public_institutions,_suc
h_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_juri
sdiction‘s_property_tax_base.
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-1
,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_specifi
c_good_or_service_subject_to_excise_tax.
11. The_tax_increase_may_have_reduced_the_aggregate_demand_for_consumer_goods_and,_cons
equently,_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_purchase
s_through_mail_order_catalogs_or_on-line.
12. From_a_political_perspective,_liquor_and_cigarettes_sales_make_an_excellent_tax_base_becaus
e_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_regardles
s_of_a_heavy_excise_tax.
13. The_federal_income_has_the_broader_base._The_federal_payroll_tax_is_imposed_on_wages,_sal
aries,_and_other_forms_of_compensation_earned_by_employees._The_federal_income_tax_is_im
posed_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_b
ased_on_the_value_of_the_property_on_a_particular_assessment_date._A_transfer_tax_is_a_tran
saction-
_based_tax_levied_on_the_transfer_of_property_from_one_party_to_another._A_transfer_tax_is_b
ased_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_t
ax_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_coll
ection_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_t
he_President._Technically,_Treasury_regulations_only_interpret_and_explain_the_statute_and_ar
en‘t_laws_in_their_own_right._Thus,_regulations_are_less_authoritative_than_the_Code_itself._H
owever,_because_Congress_authorized_the_Treasury_to_write_regulations,_they_are_the_gover
nment‘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,_an
d_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_gov
ernments_of_the_four_counties_in_which_JK_Services_conducts_business,_the_state_gove
rnment_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_hav
e_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_in
come_generated_by_the_Manhattan_real_estate.
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-2
, 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_in
come_generated_by_the_Buffalo_real_estate.
c. The_United_States_has_jurisdiction_to_tax_Mr._Tompkin_because_he_is_a_permanent_resident.
d. The_United_States_has_jurisdiction_to_tax_Mr._Tompkin_on_his_share_of_the_U.S._s
ource_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
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-3
, _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-
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-4
Principles of Taxation for Business and Investment Planning 2025-26 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_be
cause_they_don‘t_entitle_the_payer_to_a_specific_government_good_or_service,_such_as_a_po
stage_stamp_or_a_driver‘s_license._Tax_payments_also_differ_from_fees_or_user_charges_bec
ause_they_are_compulsory.
2. This_payment_has_characteristics_of_a_tax,_a_penalty,_and_a_user_fee._The_compulsory_paym
ent_is_not_specifically_punitive_but_does_apply_selectively_to_those_companies_most_likely_res
ponsible_for_the_polluted_condition_of_Green_River._However,_these_same_companies_may_b
e_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_en
titles_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_ap
artment_complex,_he_bears_the_incidence_of_the_increased_property_tax._To_the_extent_that_t
he_decline_reduces_the_value_of_adjoining_properties_or_makes_the_neighborhood_less_attract
ive,_the_owners_of_the_adjoining_properties_and_the_neighborhood_residents_share_the_incide
nce_of_the_tax_increase.
5. People_who_don‘t_directly_use_public_schools_(such_as_Mr._and_Mrs._Ahern_or_people_who_d
on‘t_have_children)_indirectly_benefit_from_a_public_education_system_for_the_general_populati
on._Arguably,_public_education_contributes_to_a_skilled_workforce_and_improves_the_cultural_a
nd_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_be
ar_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_owners
hip_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_business
es_and,_therefore,_would_be_at_a_competitive_disadvantage_without_a_preferential_real_prop
erty_tax_rate.
9. Many_jurisdictions_that_levy_property_taxes_provide_an_exemption_for_public_institutions,_suc
h_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_juri
sdiction‘s_property_tax_base.
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-1
,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_specifi
c_good_or_service_subject_to_excise_tax.
11. The_tax_increase_may_have_reduced_the_aggregate_demand_for_consumer_goods_and,_cons
equently,_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_purchase
s_through_mail_order_catalogs_or_on-line.
12. From_a_political_perspective,_liquor_and_cigarettes_sales_make_an_excellent_tax_base_becaus
e_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_regardles
s_of_a_heavy_excise_tax.
13. The_federal_income_has_the_broader_base._The_federal_payroll_tax_is_imposed_on_wages,_sal
aries,_and_other_forms_of_compensation_earned_by_employees._The_federal_income_tax_is_im
posed_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_b
ased_on_the_value_of_the_property_on_a_particular_assessment_date._A_transfer_tax_is_a_tran
saction-
_based_tax_levied_on_the_transfer_of_property_from_one_party_to_another._A_transfer_tax_is_b
ased_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_t
ax_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_coll
ection_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_t
he_President._Technically,_Treasury_regulations_only_interpret_and_explain_the_statute_and_ar
en‘t_laws_in_their_own_right._Thus,_regulations_are_less_authoritative_than_the_Code_itself._H
owever,_because_Congress_authorized_the_Treasury_to_write_regulations,_they_are_the_gover
nment‘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,_an
d_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_gov
ernments_of_the_four_counties_in_which_JK_Services_conducts_business,_the_state_gove
rnment_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_hav
e_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_in
come_generated_by_the_Manhattan_real_estate.
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-2
, 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_in
come_generated_by_the_Buffalo_real_estate.
c. The_United_States_has_jurisdiction_to_tax_Mr._Tompkin_because_he_is_a_permanent_resident.
d. The_United_States_has_jurisdiction_to_tax_Mr._Tompkin_on_his_share_of_the_U.S._s
ource_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
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-3
, _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-
Copyright_©2025_McGraw-Hill_Education._All_rights_reserved.
No_reproduction_or_distribution_without_the_prior_written_consent_of_McGraw-
Hill_Education.
1-4
