Principles of Taxation for Business & Investment Planning 2023, 26th Edition by Jones, Catanach, Callaghan & Kubick – Complete Guide & Manual

SOLUTION MANUAL FOR j j




Principles of Taxation for Business and Investment Planning 2023
j j j j j j j j

jj Edition 26th Edition by Sally M. Jones
j j j j j j




FULL TEST BANK!!! j j

,Chapterj1jTaxesjandjTaxingjJurisdictions

QuestionsjandjProblemsjforjDiscussion

1. Taxjpaymentsjdifferjfromjgovernmentjfinesjandjpenaltiesjbecausejtheyjaren‘tjintendedjtojdeterjorj
punishjunacceptablejbehavior.jTaxjpaymentsjdifferjfromjfeesjorjuserjchargesjbecausejtheyjdon‘tj
entitlejthejpayerjtojajspecificjgovernmentjgoodjorjservice,jsuchjasjajpostagejstampjorjajdriver‘sjlic
ense.jTaxjpaymentsjalsojdifferjfromjfeesjorjuserjchargesjbecausejtheyjarejcompulsory.

2. Thisjpaymentjhasjcharacteristicsjofjajtax,jajpenalty,jandjajuserjfee.jThejcompulsoryjpaymentjisjnotj
specificallyjpunitivejbutjdoesjapplyjselectivelyjtojthosejcompaniesjmostjlikelyjresponsiblejforjthejpol
lutedjconditionjofjGreenjRiver.jHowever,jthesejsamejcompaniesjmayjbejthejentitiesjthatjbenefitjmo
stjfromjthejenvironmentaljclean-up.

3. Thisjpaymentjmorejcloselyjresemblesjajfeejforjajgovernmentjservicejthanjajtransaction-
basedjtaxjbecausejthejtransactionjoccursjbetweenjajprivatejpartyjandjthejjurisdictionjitself,jratherjt
hanjbetweenjprivatejpartiesjengagingjinjajmarketjtransaction.jThejpaymentjalsojentitlesjthejpayerjt
ojajspecificjbenefitj(thejrightjtojmarryjunderjlaw).

4. TojthejextentjthatjthejdeclinejinjexteriorjmaintenancejreducesjthejvaluejofjMr.jPowell‘sjapartmentjc
omplex,jhejbearsjthejincidencejofjthejincreasedjpropertyjtax.jTojthejextentjthatjthejdeclinejreducesj
thejvaluejofjadjoiningjpropertiesjorjmakesjthejneighborhoodjlessjattractive,jthejownersjofjthejadjoin
ingjpropertiesjandjthejneighborhoodjresidentsjsharejthejincidencejofjthejtaxjincrease.

5. Peoplejwhojdon‘tjdirectlyjusejpublicjschoolsj(suchjasjMr.jandjMrs.jAhernjorjpeoplejwhojdon‘tjhavej
children)jindirectlyjbenefitjfromjajpublicjeducationjsystemjforjthejgeneraljpopulation.jArguably,jpubl
icjeducationjcontributesjtojajskilledjworkforcejandjimprovesjthejculturaljandjsocialjenvironmentjinjw
hichjMr.jandjMrs.jAhernjlive.jBasedjonjthisjargument,jMr.jandjMrs.jAhernjshouldjnotjbejexemptjfro
mjthejlocaljpropertyjtax.

6. Thejconsumersjwhojpayjthejsamejpricejforjajsmallerjbarjofjsoapjofjlesserjqualityjbearjthejinci
dencejofjthejnewjgrossjreceiptsjtax.

7. Realjpropertyjcan‘tjbejhiddenjorjmoved,jandjitsjownershipj(legaljtitle)jisjajmatterjofjpublicjrec
ord.jInjcontrast,jpersonaljpropertyjisjmobilejandjmayjbejeasilyjconcealed.jMoreover,jjurisdic
tionsjmayjnotjhavejanjeffectivejmeansjtojdiscoverjorjtracejownershipjofjpersonaljproperty.

8. Arguably,jprivatejgolfjcoursesjbeautifyjthejlocalityjandjarejenvironmentallyjmorejdesirablejthanjot
herjcommercialjactivities.jTheyjalsojmayjrequirejmorejacreagejthanjotherjbusinessesjand,jtheref
ore,jwouldjbejatjajcompetitivejdisadvantagejwithoutjajpreferentialjrealjpropertyjtaxjrate.

9. Manyjjurisdictionsjthatjlevyjpropertyjtaxesjprovidejanjexemptionjforjpublicjinstitutions,jsuchjasjsta
tejuniversitiesjorjprivatejcolleges.jIfjUniversityjKjisjentitledjtojsuchjanjexemption,jeveryjcommerci
aljbuildingjorjresidencejacquiredjbyjthejUniversityjreducesjthejlocaljjurisdiction‘sjpropertyjtaxjbas
e.

10. Excisejtaxesjarejimposedjonjajmuchjnarrowerjrangejofjconsumerjgoodsjandjservicesjthanjsal
esjtaxes.jConsequently,jpeoplejcanjmorejreadilyjavoidjpurchasingjthejspecificjgoodjorjservic
ejsubjectjtojexcisejtax.

,11. Thejtaxjincreasejmayjhavejreducedjthejaggregatejdemandjforjconsumerjgoodsjand,jconsequently
,jmunicipaljresidentsjarejbuyingjfewerjgoods.jAjsecondjpossibilityjisjthatjmunicipaljresidentsjarejtra
velingjtojotherjjurisdictionsjwithjlowerjtaxjratesjorjmakingjmorejpurchasesjthroughjmailjorderjcatal
ogsjorjon-line.

12. Fromjajpoliticaljperspective,jliquorjandjcigarettesjsalesjmakejanjexcellentjtaxjbasejbecausejconsu
mptionjofjthejtwojproductsjisjpurelyjdiscretionary,jandjanyjdeclinejinjconsumptionjbecausejofjthejta
xjisjsociallyjdesirable.jFromjanjeconomicjperspective,jthesejsalesjarejajgoodjtaxjbasejbecausejthej
demandjforjliquorjandjcigarettesjisjrelativelyjpricejinelastic.jInjotherjwords,jpeoplejwhojdrinkjandjs
mokejonjajregularjbasisjbuyjthesejproductsjregardlessjofjajheavyjexcisejtax.

13. Thejfederaljincomej taxjhasjthejbroaderjbase.jThejfederaljpayrolljtaxjisjimposedjonjwages,jsala
ries,jandjotherjformsjofjcompensationjearnedjbyjemployees.jThejfederaljincomejtaxjisjimpose
djonjalljtypesjofjcompensationjasjwelljasjnetjbusinessjprofit,jinvestmentjincome,jandjanyjotherji
ncomejitemjfromjwhateverjsourcejderived.

14. Ajpropertyjtaxjisjajperiodicj(usuallyjannual)jtaxjleviedjonjthejownershipjofjpropertyjandjbasedjonjth
ejvaluejofjthejpropertyjonjajparticularjassessmentjdate.jAjtransferjtaxjisjajtransaction-
jbasedjtaxjleviedjonjthejtransferjofjpropertyjfromjonejpartyjtojanother.jAjtransferjtaxjisjbasedjonjthej
valuejofjthejpropertyjatjdatejofjtransfer.

15. Ifjthejfederaljgovernmentjcouldj―piggyjback‖jajnationaljsalesjtaxjonjexistingjstatejsalesjtaxjcollect
ionjsystems,jthejfederaljgovernmentjcouldjavoidjcreatingjajnewjfederaljagencyjforjcollectingjthejt
ax.jInjcontrast,jthejfederaljgovernmentjwouldjhavejtojcreatejajnewjcollectionjsystemjforjajnationa
ljVAT.jHowever,jajnationaljVATjwouldjbejlessjlikelyjtojcausejjurisdictionaljconflictjbetweenjthejfed
eraljgovernmentjandjthejstatesjbecausejstatesjdon‘tjdependjonjVATsjasjajsourcejofjrevenue.

16. ThejInternaljRevenuejCodejisjfederaljstatutoryjlaw,jenactedjbyjCongressjandjsignedjbyjthejPresid
ent.jTechnically,jTreasuryjregulationsjonlyjinterpretjandjexplainjthejstatutejandjaren‘tjlawsjinjtheirj
ownjright.jThus,jregulationsjarejlessjauthoritativejthanjthejCodejitself.jHowever,jbecausejCongres
sjauthorizedjthejTreasuryjtojwritejregulations,jtheyjarejthejgovernment‘sjofficialjinterpretationjofjst
atutoryjlaw.jPractically,jthejregulationsjcarryjconsiderablejauthoritativejweight.


ApplicationjProblems

1. a.j Thejstatementjofjfactsjidentifiesjthreejtaxpayers:jMr.jJoshjKenney,jJKjServices,jandjJKjRe
alty.

b. ThejgovernmentjofjthejlocalityjinjwhichjMr.jKenneyjresides,jthejstatejgovernmentjofjVermont,
jandjthejU.S.jgovernmentjhavejjurisdictionjtojtaxjMr.jKenney.jThejlocaljgovernmentsjofjthejfo
urjcountiesjinjwhichjJKjServicesjconductsjbusiness,jthejstatejgovernmentjofjVermont,jandjth
ejU.S.jgovernmentjhavejjurisdictionjtojtaxjJKjServices.jThejcityjofjBoston,jthejstatejgovernme
ntjofjMassachusetts,jandjthejU.S.jgovernmentjhavejjurisdictionjtojtaxjJKjRealty.

2. a.j j ThejUnitedjStatesjhasjjurisdictionjtojtaxjMrs.jMayjbecausejshejisjajpermanentjresident.

b. ThejUnitedjStatesjhasjjurisdictionjtojtaxjMrs.jMayjonlyjonjthejU.S.jsourcejrentaljincomejge
neratedjbyjthejManhattanjrealjestate.

c. ThejUnitedjStatesjdoesjnotjhavejjurisdictionjtojtaxjMrs.jMay.

d. ThejUnitedjStatesjhasjjurisdictionjtojtaxjMrs.jMayjbecausejshejisjajU.S.jcitizen.

, 3. a.j j ThejUnitedjStatesjhasjjurisdictionjtojtaxjMr.jTompkinjbecausejhejisjajU.Sjcitizen.

b. ThejUnitedjStatesjhasjjurisdictionjtojtaxjMr.jTompkinjonlyjonjthejU.S.jsourcejrentaljincomejge
neratedjbyjthejBuffalojrealjestate.

c. ThejUnitedjStatesjhasjjurisdictionjtojtaxjMr.jTompkinjbecausejhejisjajpermanentjresident.

d. ThejUnitedjStatesjhasjjurisdictionjtojtaxjMr.jTompkinjonjhisjsharejofjthejU.S.jsourcejbus
inessjincomejgeneratedjbyjSophicjPartnership.

4. StatejA:
Volumejofjsalesjbeforejratejincrease $800,000,000
Originaljtaxjrate .05
Revenuejbeforejratejincrease $40,000,000

Volumejofjsalesjafterjratejincrease $710,000,000
Newjtaxjrate .06
Revenuejafterjratejincrease $42,600,000

Additionaljrevenuej($42,600,000j−j$40,000,000) $2,600,000

StatejZ:
Volumejofjsalesjaddedjtojtaxjbase $50,000,000
Taxjrate .05
Additionaljrevenue $2,500,000


5. a.j j Thejpropertyjtaxjisj$8,300j($415,000jj2%).

b. Thejpropertyjtaxjisj$19,000j([$500,000jj2%]j+j[$225,000jj4%]).

6. a.j j Thejpropertyjtaxjisj$39,000j($1.3jmillionjj3%).

b. Thejpropertyjtaxjisj$85,000j([$2jmillionjj3%]j+j[$2.5jmillionjj1%]).

7. IncreasejinjCountyjG‘sjaggregatejassessedjpropertyjtaxjvalue
$23,000,000j
AssessedjvaluejofjLexon‘sjnewjfacility (20,000,000)
NetjincreasejinjCountyjG‘sjtaxjbase
$3,000,000
jTaxjrate j .04
NetjeffectjonjCountyjG‘sjcurrentjyearjrevenue $120,000

8. a.j ValuejofjpropertyjpurchasedjinjStatejK
$600,000
jUsejtaxjratejinjStatejH j .06
Prejcreditjusejtax $36,000
SalesjtaxjpaidjtojStatejK (18,000)
UsejtaxjowedjtojStatejH $18,000

b. ValuejofjpropertyjpurchasedjinjStatejL
$750,000
jUsejtaxjratejinjStatejH j .06
Prejcreditjusejtax $45,000
SalesjtaxjpaidjtojStatejL (48,750)
UsejtaxjowedjtojStatejH -0-