Deck 10: Major Tax Structures: Taxes on Goods and Services

Question 1

Multistage sales taxes levied at a fixed rate on the gross receipts of transactions at each stage of production are called:

A) excise taxes.
B) turnover taxes.
C) value-added taxes.
D) general consumption taxes.

Answer 1

turnover taxes

Question 2

If the car dealer is subject to a 10 percent VAT, how much would it pay in taxes?

A) $500
B) $1,100
C) $0
D) $600

Answer 2

$ 600

Question 3

The following statements about VAT are true except:

A) VAT is a means for taxing general consumption.
B) VAT is a single stage tax.
C) VAT covers broader services than the RST.
D) VAT ultimately excludes businesses from taxation.

Answer 3

VAT is a single stage tax

Question 4

What statutory rate does the family pay?

A) 5.0%
B) 3.5%
C) 7.0%
D) Cannot be computed from this information.

Question 5

What average effective tax rate does the family pay?

A) 5.0%
B) 3.5%
C) 7.0%
D) Cannot be computed from this information
Use the Following Information to Answer the Following Four Questions.
Assume that the production chain for an economy is characterized by the following transactions:
Business Purchases Sales
Mine $ 0 $ 200
Steel Mill $ 200 $ 1,000
Car Maker $ 1,000 $ 5,000
Car Dealer $5,000 $ 11,000
Assume further that the only transaction where a non-business is involved is in the sales of cars from car dealers to individuals.

Question 6

Which of these problems is not associated with selective excise taxes?

A) Collection costs are high per tax dollar receiveD)
B) They discriminate by taste.
C) It is often difficult to define what is covered by the tax.
D) None of the above.

Question 7

Under a "component part/physical ingredient" rule for determining the exemption of business purchases under a state sales and use tax, which of the following purchases would probably not be exempt from the sales tax?

A) Purchase by a local clothing store of shirts for resale to customers.
B) Purchase by Chrysler Corporation of tires to be placed on Dodge vans for sales to the publiC)
C) Purchase of sesame seed buns by a McDonald's restaurant.
D) Purchase of clothing display racks by a local clothing store.
Use the Information For the Next Two Questions.
A state applies a 7 percent sales tax to consumer purchases of many items. These are data for a typical family:
Annual Income $60,000
Family Size 2
Purchases of taxed items $30,000

Question 8

An alternative approach to the food exemption to attack sales tax regressivity is:

A) the circuit breaker.
B) the clothing exemption.
C) the component part rule.
D) the tax credit or rebate.

Question 9

If the car dealer is subject to a 10 percent retail sales tax RST), how much would it pay in taxes?

A) $ 500
B) $1,100
C) $0
D) $600

Question 10

Which of the following statements about American state sales taxes is not generally true?

A) The statutory rates of American sales taxes are lower than of European value added taxes
B) American sales taxes usually apply generally to tangible personal property transactions but only selectively to purchases of services.
C) American retail sales taxes often include many purchases made by businesses as well as household consumption purchases.
D) None of the above-all are accurate.

Question 11

Exemption of food purchases from a sales tax reduces regressivity because:

A) the percent of income spent on food generally falls as family income is higher.
B) total food purchases decline as income rises.
C) low income families spend more money on food than do high income families.
D) food exemption does not reduce regressivity.

Question 12

A common criticism of retail sales and excise taxes is:

A) they are progressive with respect to income.
B) they are general taxes with no allowed exemptions.
C) they are regressive with respect to income.
D) they tend to be shifted backwarD)

Question 13

Which of the following might logically be reasons used in support of a value added tax for the federal government?

A) Improve separation of revenue sources across the levels of government federal, state, and local).
B) Provide an increased economic incentive for private saving.
C) Increase the responsiveness of the federal tax base to changes in the natural economic activity.
D) Improve progressivity of the federal revenue system.

Question 14

The Indiana legislature imposes a special excise tax on murder mysteries because such books give people bad ideas. As a result, the wages of salespeople in bookstores selling such books decline and prices of murder mysteries rise. Which of the following is accurate?

A) The impact of the tax is on the sellers of such books and on the salespeople; the incidence is shifted to mystery purchasers.
B) The impact is on mystery purchasers and on the salesperson; the incidence is on the bookstores.
C) The impact is on the bookstores; incidence is on salespersons and book purchasers.
D) Bookstores, salespersons, and book purchasers share the impact and incidence.

Question 15

In Europe, the sales tax that yields more revenue than any other is the:

A) Retail Sales Tax
B) Value Added Tax VAT)
C) Excise Tax
D) Luxury Tax

Question 16

If the mine is subject to a 10 percent value-added tax VAT), how much would it pay in taxes?

A) $400
B) $20
C) $0
D) $380

Question 17

In the logic of consumption taxation, business purchases are exempt in retail sales taxation. Which of the following is not a reason for that exemption?

A) Taxes should normally avoid distorting business decisions.
B) The tax is designed to place a uniform rate on household consumption expenditures.
C) Taxes ought not discourage economic development.
D) None of the above-all are reasons for exemption.

Question 18

Purchases of which of the following is most likely to be taxed by a state retail sales tax?

A) Personal services, i.e., services of a barber or beautician.
B) Professional services, i.e., services of a lawyer or accountant.
C) durable goods, i.e., a television set.
D) food purchased at a grocery, i.e., a loaf of breaD)

Question 19

Which of the following is a unit excise tax?

A) The 5 percent Indiana state sales tax.
B) The 2 cents per mile toll on the Indiana toll roaD)
C) The 12 cents per gallon Indiana beer tax.
D) The Indiana motor vehicle excise tax levied each year at a rate varying by the value of your car when it was new.

Question 20

A firm buys $1,000 in inputs from other firms, pays $1,000 for labor services, and has sales of $2,500 for a profit of $500. Under a value added tax, the firm's tax base would be:

A) 500
B) 1,500
C) 2,500
D) None of the above.

Question 21

How much more revenue does a 10 percent VAT collect as compared to a 5 percent RST?

A) $500
B) $1,100
C) $0
D) $600
Chapter Eleven