# State Whether Each of the Following Payments Is a Tax Essay

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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
c. The average tax rate is the rate of tax paid on the total tax base; the total tax divided by taxable income. In this case, the total tax is \$18,360 on a taxable income of \$88,000, which gives an average tax rate of 20.86%:

20.86% = (\$18,360 tax \$88,000 taxable income)

d. The effective tax rate is the rate of tax paid on all income (taxable and nontaxable). The total tax paid is divided by the taxpayer's economic income (taxable income + nontaxable income). In this case, Susan has \$10,000 of tax-exempt income that increases her economic income to \$98,000 (\$88,000 taxable + \$10,000 nontaxable). This results in an effective tax rate of 18.73%:

18.73% = (\$18,360 tax \$98,000 economic income)

44. A taxpayer has \$95,000 of taxable income for the current year. Determine the total tax, the marginal tax rate, and the average tax rate if the taxpayer is a

a. Single individual
b. Married couple
c. Corporation

a. Total tax on \$95,000 for a single individual: 2009 single rate schedule Taxable Income \$ 95,000
Tax on 82,250 \$ 16,750
Excess \$ 12,750
Taxed at Marginal tax rate x 28% 3,570
Total Tax \$ 20,320

average tax rate = 21.39% = \$20,320 tax \$95,000 taxable income

b. Total tax on \$95,000 for a married couple: 2009 married, filing jointly rate schedule

Taxable Income \$ 95,000
Tax on