The statutory tax rate differs from a firm's average tax rate due to which of the following reasons
A) the statutory tax rate is a marginal tax rate.
B) some expenses are included in book income but do not enter into taxable income.
C) the average tax rate is for a period of three years.
D) the statutory tax rate does not effect GAAP measures of revenues and expenses.

Question

Quizplus · Accepted Answer

The statutory tax rate is the rate set by the government for a specific level of taxable income, while the average tax rate measures the total amount of taxes paid divided by taxable income. The difference between the two can arise because some expenses may be deductible for book accounting purposes but not for tax purposes, resulting in a higher average tax rate than the statutory tax rate. The other options are incorrect because the statutory tax rate is not necessarily marginal, three-year period for average tax rate is not applicable in all cases, and GAAP measures are not relevant to tax rates.

The Statutory Tax Rate Differs from a Firm's Average Tax