CHAPTER 1: EXPLORING THE TAX ENVIRONMENT

DISCUSSION PROBLEMS

1) CUSTER COUNTRY IS CONSIDERING RAISING REVENUES BY IMPOSING A $25 FEE ON COUPLES WHO OBTAIN A MARRIAGE LICENSE WITHIN THE JURISDICTION. DOES THIS FEE MEET THE DEFINITION OF A TRANSACTION-BASED TAX?

NO, IT MORE CLOSELY RESEMBLES A FEE FOR A GOVERNMENT SERVICE. THE PAYMENT ENTITLES THE PAYER TO A SPECIFIC BENEFIT (THE RIGHT TO MARRY UNDER THE LAW).

2) A LOCAL GOVERNMENT RECENTLY IMPOSED A NEW 2 PERCENT TAX ON THE GROSS RECEIPTS OF BUSINESSES OPERATING WITHIN ITS JURISDICTION. THE XYZ COMPANY, WHICH MANUFACTURES SOAP AND OTHER TOILETRIES, RESPONDED TO THE TAX BY REDUCING THE SIZE OF ITS BARS OF SOAP AND PURCHASING A CHEAPER GRADE OF INGREDIENTS. BY MAKING THESE …show more content…
DK OWE IF SHE PURCHASED THE PAINTING FROM A GALLERY IN NEW YORK CITY AND PAID NEW YORK’S 8.75 PERCENT TAX ON THE TRANSACTION?

MRS. DK OWES NO PENNSYLVANIA USE TAX BECAUSE HER $823 NEW YORK SALES TAX ($9,400 X 8.75%) EXCEEDS $658.

C) HOW MUCH PENNSYLVANIA USE TAX WOULD MRS. DK OWE IF SHE PURCHASED THE PAINTING FROM A DEALER IN RICHMOND AND PAID VIRGINIA’S 5 PERCENT TAX ON THE TRANSACTION?

MRS. DK OWES $188 PENNSYLVANIA USE TAX ($658 - $470 CREDIT FOR VIRGINIA SALES TAX [$9,400 × 5%]).

4) IN EACH OF THE FOLLOWING CASES, DETERMINE WHETHER THE UNITED STATES HAS JURISDICTION TO TAX MRS. CM.

A) MRS. CM IS A CITIZEN OF BRAZIL BUT IS A PERMANENT RESIDENT OF ORLANDO, FLORIDA.

THE UNITED STATES HAS JURISDICTION TO TAX MRS. CM BECAUSE SHE IS A PERMANENT RESIDENT.

B) MRS. CM IS A CITIZEN AND RESIDENT OF BRAZIL. SHE OWNS MANHATTEN REAL ESTATE THAT GENERATES $100,000 NET RENTAL INCOME ANNUALLY.

THE UNITED STATES HAS JURISDICTION TO TAX MRS. CM ONLY ON THE U.S. SOURCE INCOME GENERATED BY THE MANHATTAN REAL ESTATE.

C) MRS. CM IS A CITIZEN AND RESIDENT OF BRAZIL. SHE OWNS NO PROPERTY AND CONDUCTS NO BUSINESS IN THE UNITED STATES.

THE U.S. DOES NOT HAVE JURISDICTION TO TAX MRS. CM.

D) MRS. CM IS A U.S. CITIZEN BUT IS A PERMANENT RESIDENT OF SAO PAULO, BRAZIL.

THE UNITED STATES HAS JURISDICTION TO TAX MRS. CM BECAUSE SHE IS A