Principles of Taxation for Business and Investment Planning 2018 Edition 21st Edition Test Bank

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Principles of Taxation for Business and Investment Planning 2018 Edition 21st Edition Test Bank - Page 1 preview image

1Copyright © 2018 McGraw-HillPrinciples of Tax for Bus and Invest Plan 2018 Ed , 21e(Jones)Chapter 1Taxes and Taxing Jurisdictions1) Payment of a tax entitles the payer to a specific good or service from the government.2) A user fee entitles the payer to aspecific good or service from the government.3) A tax is intended to deter or punish unacceptable behavior.4) A tax is a payment to support the cost of government.5) Under U.S. tax law, corporations are entities separate and distinct from their shareholders.6) The person who pays a tax directly to the government always bears the economic incidence ofthe tax.7) In some cases, the payer of a tax can shift the economic incidence of the tax to a third party.8) The U.S. government hasjurisdiction to tax individuals who are not U.S. citizens but who arepermanent U.S. residents.9) The U.S. government has jurisdiction to tax individuals who are not U.S. citizens but whoearn income from a source within the United States.10) The U.S. government does not have jurisdiction to tax individuals who are U.S. citizens butwho are permanent residents of another country.11) A tax with a graduated rate structure must have at least two brackets of tax base.12) A sales tax is an example of a transaction-based tax.13) A tax on net income is an example of a transaction-based tax.14) A sales tax is an example of an activity-based tax.15) Ad valorem property taxes are the major source of revenue for local governments.16) Taxes on personal property are more difficult to administer and enforce than taxes on realproperty.17) A state government may levy either a sales tax or a use tax on consumers but not both.18) Sellers of retail goods are responsible for collecting sales tax from their customers andremitting the tax to the state government.19) Purchasers of consumer goods through the mail are responsible for paying use tax on goodsfor which sales tax was not collected by the seller.

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2Copyright © 2018 McGraw-Hill20) The majority of state governments raise revenue from both personal and corporate incometaxes.21) The federal government imposed the first income tax to raise money to fight the War of1812.22) The U.S. Constitution gives the federal government the power to impose a tax on incomefrom whatever source derived.23) The federal government collects more revenue from the corporate income tax than from theindividual income tax.24) The federal government does not levy property taxes or a general sales tax.25) A business that operates in more thanone state is required to pay state income tax only to thestate in which it is incorporated.26) The potential for conflict among taxing jurisdictions is greatest for businesses operating on aglobal scale.27) Fewer than half of the state governments depend on gambling as a source of revenue.28) According to the United States Supreme Court, businesses that sell over the internet mustcollect sales tax only from purchasers living in a state in which the business has a physicalpresence.29) The Internal Revenue Code is written by the Internal Revenue Service.30) Treasury regulations are tax laws written by the Treasury Department.31) Which of the following is not characteristic of a tax?A) A tax is compulsory.B) A tax is intended to punish unacceptable behavior.C) A tax is levied by a government.D) All of the above are characteristics of a tax.32) The state of Virginia charges motorists 50 cents for every trip across a toll bridge over theJames River. This charge is an example of a(n):A) User's feeB) Transaction-based taxC) Activity-based taxD) Excise tax

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3Copyright © 2018 McGraw-Hill33) The city of Mayfield charges individuals convicted of DWI (driving while intoxicated) $500for the first conviction and $2,000 for any subsequent conviction. These charges are an exampleof a(n):A) User's feeB) Transaction-based taxC) Activity-based taxD) Government penalty34) The property tax on a rent house owned by Mr. Janey increased by $1,200 this year. Mr.Janey increased the monthly rent charged to his tenant, Ms.Lacey, by $45. Who bears theincidence of the property tax increase?A) Mr. JaneyB) Ms. LaceyC) Both Mr. Janey and Ms. LaceyD) Neither Mr. Janey nor Ms. Lacey35) Acme Inc.'s federal income tax increased by $100,000 this year. As a result, Acme reducedthe annual dividend paid on its common stock by $100,000. Who bears the incidence of thecorporate tax increase?A) Acme Inc.B) Acme's customersC) Acme's employeesD) Acme's shareholders36) Acme Inc.'s property taxes increased by $65,000 this year. As a result, Acme increased thesale prices of its products to generate $65,000 more revenue. Who bears the incidence of thecorporate tax increase?A) Acme Inc.B) Acme's customers.C) Acme's employees.D) Acme's shareholders.37) Acme Inc.'s property taxes increased by $19,000 this year. As a result, Acme eliminated$19,000 from its budget for the employee Christmas party. Who bears the incidence of thecorporate tax increase?A) Acme Inc.B) Acme's customers.C) Acme's employees.D) Acme's shareholders.38) Mr. Bilboa is a citizen of Portugal. Which of the following statements istrue?A) The U.S. government has no jurisdiction to tax Mr. Bilboa because he is not a U.S. citizen.B) The U.S. government has jurisdiction to tax Mr. Bilboa if he is apermanent resident of theUnited States.C) The U.S. government has jurisdiction to tax Mr. Bilboa if he earns income from a business heoperates in Florida.D) Both B. and C. are true.

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4Copyright © 2018 McGraw-Hill39) Mrs. King is a U.S. citizen who permanently resides in South Africa. Which of the followingstatements istrue?A) The U.S. government has jurisdiction to tax Mrs. King.B) The U.S. government has no jurisdiction to tax Mrs. King because she does not live in theUnited States.C) The U.S. government has no jurisdiction to tax Mrs. King because she does not earn anyincome from a source within the United States.D) Mrs. King can elect whether to pay tax to the United States or to South Africa.40) Mrs. Renfru is a Brazilian citizen who permanently resides in Houston, Texas. Which of thefollowing statements istrue?A) The U.S. government has no jurisdiction to tax Mrs. Renfru because she is not a U.S. citizen.B) The U.S. government has jurisdiction to tax Mrs. Renfru only on income that she earns from asource within the United States.C) The U.S. government has jurisdiction to tax Mrs. Renfru.D) Mrs. Renfru can elect whether to pay tax to the United States or to Brazil.41) Which of the following statements regarding tax systems isfalse?A) A single percentage that applies to the entire tax base is described as a flat rate.B) When designing a tax, governments try to identify tax bases that taxpayers can easily avoid orconceal.C) A tax base is an item, occurrence, transaction, or activity with respect to which a tax is levied.D) With regard to tax systems, the term revenue refers to the total tax collected by thegovernment.42) Which of the following is an example of a transaction-based tax?A) A tax on net business incomeB) An excise taxC) An estate tax on the transfer of assets at deathD) Both B. and C.43) Which of the following is an example of an activity-based tax?A) A tax on business' net incomeB) An excise taxC) A gift tax on the transfer of assets by giftD) Both A. and C.44) Which of thefollowing is an earmarked tax?A) A tax imposed on the purchase of specific items such as liquor or cigarettesB) A tax that generates revenues that the government can spend only to build more NationalParksC) A tax imposed only on individuals who earn more than $1 million annuallyD) A tax that generates revenues that the government can spend for any purpose

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5Copyright © 2018 McGraw-Hill45) Which of the following characterizes a good tax base?A) The base can be easily expressed in monetary terms.B) Taxpayers cannot easily avoid or conceal the base.C) Taxpayers cannot easily move the base from one jurisdiction to another.D) All of the above characterize a good tax base.46) The city of Springvale imposes a net income tax on businesses operating within itsjurisdiction. The tax equals 1% of income up to $100,000 and 1.5% of income in excess of$100,000. The Springvale Bar and Grill generated $782,000 net income this year. Compute itscity income tax.A) $10,230B) $11,230C) $11,730D) None of the above47) Government Q imposes a net income tax on businesses operating within its jurisdiction. Thetax equals 3% of income up to $500,000 and 5% of income in excess of $500,000. Company Kgenerated $782,000 net income this year. Compute the income tax that Company K owes to Q.A) $29,100B) $14,100C) $39,100D) None of the above48) Which of the following taxes is not a significant source of revenue for local governments?A) Real property taxB) Personal property taxC) Employment taxD) All of the above49) Which of thefollowing taxes is the most significant source of revenue for localgovernments?A) Property taxB) Employment taxC) Income taxD) None of the above50) Which of the following statements concerning property taxes isfalse?A) Property taxes are ad valorem taxes.B) Property taxes are the primary source of revenue for local governments.C) Property taxes can be levied on realty or personalty.D) None of the above is false.51) A sales tax can best be described as a(n):A) Consumption taxB) Income taxC) Activity taxD) Ad valorem tax

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6Copyright © 2018 McGraw-Hill52) Which of the following statements concerning sales taxes isfalse?A) Sales taxes apply to the purchase of most types of consumer goods.B) Sales taxes apply to the purchase of most types of consumer services.C) Sales taxes are collected by the seller when the sale is made.D) Sales taxes imposed on the purchaser of retail items are consumption taxes.53) The incidence of a state sales tax levied on the purchase of retail goods is:A) Borne by the ultimateconsumer of the goods.B) Borne by the seller who must collect and remit the tax.C) Borne by the manufacturer of the goods.D) Borne by the government that levies the tax.54) Mr. Dodd resides in a state with a 6% sales and use tax. He recently traveled to another stateto buy furniture and paid that state's 4% sales tax. Which of the following statements istrue?A) Mr. Dodd's use tax liability to his home state equals 2% of the purchase price of the furniture.B) Mr. Dodd does not owe a use tax to his home state.C) Mr. Dodd's use tax liability to his home state equals 6% of the purchase price of the furniture.D) None of the above is true.55) Mr. Smith resides in a state with a 6% sales and use tax. He recently traveled to another stateto buy a sailboat and paid that state's 7% sales tax. Which of the following statements istrue?A) Mr. Smith is entitled to a refund of 1% of the purchase price of the sailboat.B) Mr. Smith does not owe a use tax to his home state.C) Mr. Smith's use tax liability to his home state equals 6% of the purchase price of the sailboat.D) None of the above is true.56) Which of the following statements about sales and use taxes istrue?A) If an individual pays a sales tax on the purchase of an item, she will not have to pay a use taxon the purchase.B) An individual must pay both a sales tax and a use tax on the taxable purchase of an item.C) Many states that impose a sales tax do not impose a complementary use tax.D) None of the above is true.57) Which of the following taxes is a significant source of revenue for state governments?A) General sales taxB) Individual income taxC) Corporate income taxD) All of the above58) Which of the following is not characteristic of an excise tax?A) An excise tax is levied onthe retail sale of specific goods.B) Excise tax rates typically are higher than general sales tax rates.C) Purchasers of luxury items are responsible for paying any excise tax directly to thegovernment.D) All of the above are characteristics of an excise tax.

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7Copyright © 2018 McGraw-Hill59) What is the major difference between a sales tax and an excise tax?A) Sales taxes are levied by state governments, while excise taxes are levied only by the federalgovernment.B) Sales taxes are imposed on the purchase of a wide variety of items, while excise taxes areimposed on the purchase of a few specific items.C) Sales taxes must be collected by the seller, while excise taxes must be paid directly by thepurchaser.D) Sales taxes are imposed on the purchase of tangible goods, while excise taxes are imposed onthe purchase of services.60) Which of the following is not an advantage of state conformity to federal corporate incometax laws?A) States have complete control over their corporate income tax revenues.B) States do not have to enact comprehensive corporate income tax statutes.C) Conformity eases the compliance burden of corporate taxpayers.D) All of the above are advantages of state conformity.61) Which tax raises the most revenue for the federal government?A) Corporate income taxB) Individual income taxC) Excise taxesD) Transfer taxes62) Which of the following federal taxes is earmarked for a specific purpose?A) Corporate income taxB) Employment taxesC) Unemployment taxesD) Both B. and C. are earmarked taxes.63) Which of the following federal taxes is not earmarked for a specific purpose?A) Employment taxesB) Unemployment taxesC) Transfer taxesD) All of the above are earmarked taxes.64) What gives the federal government the right to impose a tax on individual and corporateincome?A) Internal Revenue Code of 1986B) Revenue Act of 1913C) Sixteenth Amendment to the U.S. ConstitutionD) Bill of Rights65) When did the federal income tax become a permanent tax?A) Immediately after the Revolutionary WarB) During the Civil WarC) In 1913 when the Sixteenth Amendment to the U.S. Constitution was ratifiedD) In 1939 when Congress enacted the first Internal Revenue Code

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8Copyright © 2018 McGraw-Hill66) Which of the following does not characterize federal transfer taxes?A) The tax is imposed on the value of wealth transferred by an individual as a gift.B) The tax is imposed on the value of wealth transferred because of the death of an individual.C) The tax is imposed on the value of wealth transferred by an individual to charity.D) All of the above characterize federal transfer taxes.67) Which of the following does not characterize federal transfer taxes?A) The tax is imposed on individuals but not on corporations.B) The tax is based on the value of property transferred by gift or at death.C) The tax is a transaction tax.D) All of the above characterize federal transfer taxes.68) Company D, which has its home office in Raleigh, North Carolina, conducts business in theUnited States, Canada, and Mexico. Which of the following statements istrue?A) Because Company D must pay income tax to North Carolina, it is not required to pay tax toany other state.B) Because Company D must pay income tax to North Carolina, it is not required to pay federalincome tax.C) Because Company D must pay income tax to the United States, it is not required to pay tax toCanada or Mexico.D) None of the above is true.69) SJF Inc., which has its corporate offices in Boise, Idaho, conducts business in Idaho, Oregon,California, and British Columbia, Canada. Which of the following statements istrue?A) SJF must pay income tax only to Idaho and the United States.B) SJF may be required to pay income tax to Idaho, Oregon, California, British Columbia, theUnited States, and Canada.C) SJF must pay income tax only to Idaho, Oregon, California, and the United States.D) SJF may be required to pay income tax to either the United States or to Canada, but not toboth.70) Which type of tax is not levied by the federal government?A) Corporate income taxB) Individual income taxC) Employment taxesD) General sales tax71) Company N operates a mail order business out of its headquarters in Tulsa, Oklahoma. Thisyear, it mailed $892,000 worth of product to customers residing in Oklahoma and $489,300worth of product to customers residing in Missouri. Which of the following statements istrue?A) Company N must collect Oklahoma sales tax from its Oklahoma customers and Missourisales tax from its Missouri customers.B) Company N must collect Oklahoma sales tax from both its Oklahoma and Missouricustomers.C) Company N must collect Oklahoma sales tax from its Oklahoma customers.D) Company D is not required to collect sales tax on any mail order sales.

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9Copyright © 2018 McGraw-Hill72) Which of the following does not contribute to the dynamic nature of the tax law?A) The political pressure from professional lobbyistsB) Changes in the economic and social climateC) Changes in revenue needs of the governmentD) All of the above contribute to the dynamic nature of the tax law73) Which of the following statements regarding the political process of creating tax law isfalse?A) The political process contributes to the dynamic nature of the tax law.B) Special interest groups have little effect on the tax legislative process.C) When taxpayers device a new tactic for reducing their tax burdens, governments respond byenacting a new rule to render the tactic ineffective.D) Changes in political philosophy often reflect shifts in the public attitude about the proper roleof taxes in society.74) Which of the following is/are not a primary source of authority for the tax law?A) A revenue ruling published by the Internal Revenue ServiceB) Section 162 of the Internal Revenue CodeC) Treasury Reg. §1.351-2D) All of the above are primary sources of authority75) Which of the following statements about the Internal Revenue Code isfalse?A) The Internal Revenue Code has not been amended since 1986.B) The Internal Revenue Code is part of federal statutory law.C) The Internal Revenue Code consists of numerically organized sections.D) Only Congress has the authority to amend the Internal Revenue Code.76) How often does Congress amend the Internal Revenue Code?A) Rarely (the Internal Revenue Code has not been amended since 1986)B) Occasionally (perhaps once every decade)C) Regularly (at least once every five years)D) Constantly (usually once a year)77) Which of the following statements about Treasury regulations isfalse?A) Treasury regulations are written to interpret and explain the Internal Revenue Code.B) Treasury regulations are part of the statutory law.C) A federal court can invalidate a Treasury regulation if the court concludes that the regulationincorrectly interprets the Internal Revenue Code.D) None of the above is false.78) Revenue rulings and revenue procedures are written by:A) The Internal Revenue ServiceB) The Department of the TreasuryC) The United States CongressD) The Supreme Court

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10Copyright © 2018 McGraw-Hill79) Which of the following is not consideredadministrative authority?A) Treasury regulationsB) Revenue rulingsC) Tax Court decisionsD) All of the above are administrative authorities80) A revenue ruling is an example of:A) Judicial authorityB) Administrative authorityC) Legislative authorityD) Editorial authority81) Which of the following statements concerning judicial authority isfalse?A) Appellate court decisions have more authority than trial court decisions.B) Supreme Court decisions have more authority than appellate court decisions.C) Supreme Court decisions are the equivalent of law.D) None of the above statements is false.82) Which of the following sources of tax law carries the most authority?A) Revenue procedureB) Treasury regulationC) Supreme Court decisionD) The three sources of tax law have equal authority83) Which of the following sources of tax law carries the least authority?A) Revenue rulingB) Treasury regulationC) Section 736 of the Internal Revenue CodeD) The three sources of tax law have equalauthority84) Ms. Penser resides in the city of Lanock, Tennessee. She owns 100% of the stock of PSWInc., which is incorporated under Tennessee law and conducts business in six different localjurisdictions in Tennessee.A. How many taxpayers are identified in the above statement of facts?B. Identify the governments with jurisdiction to tax each of these taxpayers.85) Forrest Township levies a tax on the assessed value of real property located within the townlimits. The tax equals 1.4% of the value up to $300,000 plus 2% of any value in excess of$300,000. Mildred Payne owns real estate with a $983,500 assessed value. Compute her propertytax.

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11Copyright © 2018 McGraw-Hill86) Richton Company operates its business solely in Jurisdiction H, which levies a 6% sales anduse tax. This year, Richton paid $1,438,000 to purchase tangible property from a dealer locatedin Jurisdiction W. This purchase was subject to W's 3.5% sales tax. The property was shipped toRichton's office in Jurisdiction H for use in its business. Compute Richton's sales or use tax withrespect to this transaction.87) Grant Wilson is an employee of Market Enterprises, a corporation operating in state A.Identify the different types of potential taxes to be paid by both Grant and Market Enterpriseswith respect to this employment relationship.

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1Copyright © 2018 McGraw-HillPrinciples of Tax for Bus and Invest Plan 2018 Ed , 21e(Jones)Chapter 1Taxes and Taxing Jurisdictions1) Payment of a tax entitles the payer to a specific good or service from the government.Answer:FALSEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic2) A user fee entitles the payer to a specific good or service from the government.Answer:TRUEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic3) A tax is intended to deter or punishunacceptable behavior.Answer:FALSEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic4) A tax is a payment to support the cost of government.Answer:TRUEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic5) Under U.S. tax law, corporations are entities separate and distinct from their shareholders.Answer:TRUEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic

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2Copyright © 2018 McGraw-Hill6) The person who pays a tax directly to the government always bears the economic incidence ofthe tax.Answer:FALSEDifficulty: 2 MediumTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer,incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic7) In some cases, the payer of a tax can shift the economic incidence of the tax to a third party.Answer:TRUEDifficulty: 1 EasyTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic8) The U.S. government has jurisdiction to tax individuals who are not U.S. citizens but who arepermanent U.S. residents.Answer:TRUEDifficulty: 2 MediumTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic9) The U.S. government has jurisdiction to tax individuals who are not U.S. citizens but who earnincome from a source within the United States.Answer:TRUEDifficulty: 2 MediumTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic10) The U.S. government does not have jurisdiction to tax individuals who are U.S. citizens butwho are permanent residents of another country.Answer:FALSEDifficulty: 2 MediumTopic:Some Basic TerminologyLearning Objective:01-01 Define tax, taxpayer, incidence, and jurisdiction.Accessibility:Keyboard NavigationGradable:automatic

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3Copyright © 2018 McGraw-Hill11) A tax with a graduated rate structure must have at least two brackets of tax base.Answer:TRUEDifficulty: 2MediumTopic:The Relationship between Base, Rate, and RevenueLearning Objective:01-02 Express the relationship between tax base, rate, and revenue as aformula.Accessibility:Keyboard NavigationGradable:automatic12) A sales tax is an example of a transaction-based tax.Answer:TRUEDifficulty: 1 EasyTopic:The Relationship between Base, Rate, and RevenueLearning Objective:01-02 Express the relationship between tax base, rate, and revenue as aformula.Accessibility:Keyboard NavigationGradable:automatic13) A tax on net income is an example of a transaction-based tax.Answer:FALSEDifficulty: 1 EasyTopic:The Relationship between Base, Rate, and RevenueLearning Objective:01-02 Expressthe relationship between tax base, rate, and revenue as aformula.Accessibility:Keyboard NavigationGradable:automatic14) A sales tax is an example of an activity-based tax.Answer:FALSEDifficulty: 1 EasyTopic:The Relationship between Base, Rate, and RevenueLearning Objective:01-02 Express the relationship between tax base, rate, and revenue as aformula.Accessibility:Keyboard NavigationGradable:automatic15) Ad valorem property taxes are the major source of revenue for local governments.Answer:TRUEDifficulty: 1 EasyTopic:Local Taxes; Retail Sales, Use, and Excise Taxes; Federal Income TaxesLearning Objective:01-03 Describe the taxes levied by local governments.Accessibility:Keyboard NavigationGradable:automatic

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4Copyright © 2018 McGraw-Hill16) Taxes on personal property are more difficult to administer and enforce than taxes on realproperty.Answer:TRUEDifficulty: 2 MediumTopic:Local Taxes; Retail Sales, Use, and Excise Taxes; Federal Income TaxesLearning Objective:01-03 Describe the taxes levied by local governments.Accessibility:Keyboard NavigationGradable:automatic17) A state government may levy either a sales tax or a use tax on consumers but not both.Answer:FALSEDifficulty: 2 MediumTopic:Retail Sales, Use, andExcise TaxesLearning Objective:01-04 Describe the taxes levied by state governments.Accessibility:Keyboard NavigationGradable:automatic18) Sellers of retail goods are responsible for collecting sales tax from their customers andremitting the tax to the state government.Answer:TRUEDifficulty: 1 EasyTopic:Retail Sales, Use, and Excise TaxesLearning Objective:01-04 Describe the taxes levied by state governments.Accessibility:Keyboard NavigationGradable:automatic19) Purchasers of consumer goods through the mail are responsible for paying use tax on goods forwhich sales tax was not collected by the seller.Answer:TRUEDifficulty: 2 MediumTopic:Retail Sales, Use, and Excise TaxesLearning Objective:01-04 Describe the taxes levied by state governments.Accessibility:Keyboard NavigationGradable:automatic20) The majority of state governments raise revenue from both personal and corporate incometaxes.Answer:TRUEDifficulty: 2 MediumTopic:Retail Sales, Use, and Excise TaxesLearning Objective:01-04 Describe the taxes levied by state governments.Accessibility:Keyboard NavigationGradable:automatic

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