Choosing Allocation Bases for Levying Taxes
The town of Seaside has decided to construct a new sea aquarium to attract tourists. The cost of the measure is to be paid by a special tax. Although most of the townspeople believe the sea aquarium is a good idea, there is disagreement about how the tax should be levied.
Required:
Suggest three different methods of levying the tax and the advantages and disadvantages of each.

Question

Quizplus · Accepted Answer

The Answer is Possible methods of taxing include:
a. Sales tax on hotel rooms and restaurants: This is the most common method of taxing for the construction of a tourist site because the hotels and restaurants benefit directly from tourism. This taxing method is the same as allocating all the costs to the primary customers of the aquarium.
b. Property tax on businesses: This method allocates most of the costs of the aquarium to the businesses with the most expensive property. These businesses are most likely to be able to afford the additional tax. Not all businesses, however, will benefit from the aquarium.
c. Income tax on individuals: Once again, this method allocates costs to the individuals who are most likely to be able to afford the additional tax. But not all of these individuals will benefit from the aquarium.
d. A non-tax method of covering the cost of the aquarium is to issue a bond to pay for the aquarium and then use proceeds from ticket sales to pay the principle and interest on the bond.