Question 1

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Accepted Answer

This is true. The first income tax on individuals, established in 1913 after the ratification of the Sixteenth Amendment to the Constitution, had tax rates ranging from 1% to 7%, with the lowest tax bracket starting at $3,000 of taxable income and the highest bracket starting at $500,000 of taxable income.

Question 2

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.

Accepted Answer

The pay-as-you-go feature of the Federal income tax on individuals does not conform to Adam Smith's canon (principle) of certainty as it requires individuals to estimate and prepay their taxes ahead of time, which can be uncertain and subject to change. Smith believed in a clear and certain tax system where individuals knew exactly what they owed and when they owed it.

Question 3

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

Accepted Answer

The Federal gas-guzzler tax applies to all new automobiles sold in the U.S. with a low fuel economy rating, regardless of where they were manufactured.

Question 4

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

Accepted Answer

Sales made by mail order are treated the same as other sales and are subject to sales tax unless specifically exempted by state laws.

Question 5

Mona inherits her mother's personal residence, which she converts to a furnished rental house. These changes should affect the amount of ad valorem property taxes levied on the properties.

Accepted Answer

Converting a personal residence to a rental property will change the property's classification and may result in a different property tax assessment. The property tax assessment may be higher for a rental property.

Question 6

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

Accepted Answer

According to data from the Congressional Budget Office, individual income taxes made up 50% of Federal revenue in fiscal year 2020, while corporate income taxes only made up 6%.

Question 7

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Accepted Answer

The Medicare component of the FICA tax is a flat rate tax, not progressive; it applies the same percentage rate to wages regardless of income level.

Question 8

The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations.

Accepted Answer

The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on individuals, not just corporations.

Question 9

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

Accepted Answer

The answer of Like the Federal counterpart, the amount of...

Question 10

The Federal excise tax on cigarettes is an example of a proportional tax.

Accepted Answer

A proportional tax is one in which the tax rate remains the same regardless of the taxpayer's income or ability to pay. The Federal excise tax on cigarettes is a specific amount per cigarette sold, making it a proportional tax.

Question 11

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Accepted Answer

A fixture, once attached to real property, is generally considered part of the real property and thus would be subject to the ad valorem tax on realty, not personalty.

Question 12

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Accepted Answer

The amount of ad valorem taxes imposed on realty may change due to changes in property values, reassessments, and other factors.

Question 13

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Accepted Answer

This is because business use personalty is more closely monitored by government authorities and is subject to stricter regulations, making it more difficult to avoid paying the tax. In contrast, personal use personalty is often overlooked and easier to hide from tax authorities, leading to a higher rate of tax avoidance.

Question 14

There is a Federal excise tax on hotel occupancy.

Accepted Answer

The Federal government does not impose an excise tax on hotel occupancy; such taxes are typically levied at the state or local level.

Question 15

A Federal excise tax is no longer imposed on admission to theaters.

Accepted Answer

This statement is true. The Federal excise tax on admission to theaters was eliminated in 1953.

Question 16

The Federal estate and gift taxes are examples of progressive taxes.

Accepted Answer

The Federal estate and gift taxes are examples of progressive taxes because the tax rate increases as the value of the estate or gift increases.

Question 17

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

Accepted Answer

Before the Sixteenth Amendment, the Federal government did levy income taxes, notably during the Civil War period. However, the legality of a permanent income tax was challenged and led to the Supreme Court ruling in Pollock v. Farmers' Loan & Trust Co. (1895) that such taxes were unconstitutional if not apportioned according to state populations. The Sixteenth Amendment, ratified in 1913, explicitly allowed the Federal government to levy an income tax without apportionment among the states.

Question 18

Currently, the Federal income tax is less progressive than it ever has been in the past.

Accepted Answer

The progressivity of the Federal income tax has varied over time, but it is not currently at its least progressive point historically.

Question 19

Not all of the states that impose a general sales tax also have a use tax.

Accepted Answer

All states that have a general sales tax also impose a use tax to ensure that purchases made out of state for use within the state are taxed equivalently to in-state purchases.

Question 20

Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

Accepted Answer

The statement is true, as the tax code and related regulations are complex and constantly changing, making it difficult for most individuals to accurately complete their tax returns without help from professionals or tax preparation software.

Quiz 1: An Introduction to Taxation and Understanding Federal Tax Law