Collins,Inc.reports an effective tax rate in its income tax footnote of 14%.The only reconciling item between the hypothetical tax at 35% is a valuation allowance reversal of negative 21%.Which of the following statements is true concerning comparing Collins,Inc.'s effective tax rate with its competitors,all of whom have an effective tax rate between 32 and 36%?

Question

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The effective tax rate of Collins, Inc. is 14%, which is lower than its competitors' effective tax rate between 32 and 36%. However, the only reconciling item between Collins, Inc.'s effective tax rate and the hypothetical tax at 35% is a valuation allowance reversal of negative 21%. This suggests that the company has a significant amount of deferred tax assets that it has not been able to realize in the past, which reduces its tax liability. Therefore, the structural effective tax rate of Collins, Inc. is likely to be close to its competitors. Thus, the correct answer is C.