State Whether Each of the Following Payments Is a Tax
41. State whether each of the following payments is a tax. Explain your answers.
a. To incorporate his business, Alex pays the state of Texas a $2,000 incorporation fee.
The incorporation fee is not a tax. Alex receives a direct benefit from the payment of the fee - the privilege of operating his business as a corporation
b. The city paves a road and assesses each property owner on the road $4,000 for his or her share of the cost.
The payment of the assessment is not a tax. The assessment is a property improvement. Only the owners of the property benefit from the assessment. The assessment is a charge to reimburse the county government for the cost of paving the road that provides a direct benefit to each owner’s property. Such assessments are added to the basis of the property and are not allowed as a property tax deduction.
c. The city of Asheville charges each residence in the city $10 per month to pick up the trash.
The fee to collect the trash is not a tax. The $10 payment provides a specific benefit - the picking up of trash.
d. Rory pays $450 of income tax to the state of California.
State income taxes meet the definition of a tax. They are required to be paid by law and result from the state’s legislative power to tax. State income taxes are general purpose revenues and the payment of the tax does not provide any specific benefits, services, or privileges to the payor.
e. Lanny is fined $45 for exceeding the speed limit.
Fines are not taxes. They are penalties to discourage behavior and are not designed to produce revenues.
42. Explain why each of the following payments does or does not meet the IRS definition of a tax:
a. Jack is a licensed beautician. He pays the state $45 each year to renew his license to practice as a beautician.
Not a tax. Jack receives a direct benefit from the payment of the licensing fee - he is allowed to practice as a beautician.
b. Polly Corporation pays state income
a. To incorporate his business, Alex pays the state of Texas a $2,000 incorporation fee.
The incorporation fee is not a tax. Alex receives a direct benefit from the payment of the fee - the privilege of operating his business as a corporation
b. The city paves a road and assesses each property owner on the road $4,000 for his or her share of the cost.
The payment of the assessment is not a tax. The assessment is a property improvement. Only the owners of the property benefit from the assessment. The assessment is a charge to reimburse the county government for the cost of paving the road that provides a direct benefit to each owner’s property. Such assessments are added to the basis of the property and are not allowed as a property tax deduction.
c. The city of Asheville charges each residence in the city $10 per month to pick up the trash.
The fee to collect the trash is not a tax. The $10 payment provides a specific benefit - the picking up of trash.
d. Rory pays $450 of income tax to the state of California.
State income taxes meet the definition of a tax. They are required to be paid by law and result from the state’s legislative power to tax. State income taxes are general purpose revenues and the payment of the tax does not provide any specific benefits, services, or privileges to the payor.
e. Lanny is fined $45 for exceeding the speed limit.
Fines are not taxes. They are penalties to discourage behavior and are not designed to produce revenues.
42. Explain why each of the following payments does or does not meet the IRS definition of a tax:
a. Jack is a licensed beautician. He pays the state $45 each year to renew his license to practice as a beautician.
Not a tax. Jack receives a direct benefit from the payment of the licensing fee - he is allowed to practice as a beautician.
b. Polly Corporation pays state income