South-Western Federal Taxation 2022: Individual Income Taxes 45th edition by James C. Young Solution

California regarding Hernando’s omission of income, and California followed up with its own audit.
1-4  2022 Individual Income Taxes/Solutions Manual
© 2022 Cengage ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
25.  (LO 4) If Mike is drafted by a team in one of the listed states, he will escape state income tax on
income earned within that state (e.g., training camp, home games). He will not, however, escape the
income tax (state and local) imposed by jurisdictions where he plays away games. Called the “jock
tax,” it is applied to out-of-state athletes and entertainers.
26.  (LO 4, 5)
a.  This type of question has no relevance to the state income tax, but is a reminder to individual
taxpayers about the use tax and a simple way for individual taxpayers to pay any use tax due
on internet and mail-order purchases. Without the line on the state income tax return,
individual taxpayers would be required to file a separate use tax return.
b.  As the preparer of the state income tax return, you should not leave questions unanswered
unless there is a good reason for doing so. It appears that Hannah has no justifiable reason.
27.  (LO 4) The checkoff boxes add complexity to the return and mislead taxpayers into presuming that
they are not paying for the donation.
28.  (LO 4)
a.  They uncover taxpayers who were previously unknown to the taxing authority. In addition,
amnesty programs can bring taxpayers who are not in compliance with tax laws into
compliance.
b.  Amnesty provisions can apply to other than income taxes (e.g., sales, franchise, severance).
c.  No general amnesty program has been offered for any Federal taxes.
29.  (LO 4)
a.  FICA offers some measure of retirement security, and FUTA provides a modest source of
income in the event of loss of employment.
b.  FICA is imposed on both employer and employee, while FUTA is imposed only on the
employer.
c.  FICA is administered by the Federal government. FUTA, however, is handled by both the
Federal and state government.
d.  This applies only to FUTA. The merit system rewards employers who have low employee
turnover because this reduces the payout of unemployment benefits.
30.  (LO 4)
a.  Unlike the Social Security portion of FICA, there is no dollar limit on the imposition of the
Medicare tax.
b.  The 0.9% Medicare addition applies to taxpayers with wages or net self-employment income
in excess of $200,000 ($250,000 for married filing jointly).
31.  (LO 4) Only children under age 18 are excluded from FICA. Other family members, including
spouses, must be covered.
32.  (LO 4)
a.  Severance taxes are transaction taxes that are based on the notion that the state has an interest
in its natural resources. The tax is imposed on the extraction of minerals.
b.  Franchise taxes are levied on the right to do business in the state. Typically, they are imposed
on corporations and are based on their capitalization.
An Introduction to Taxation and Understanding the Federal Tax Law  1-5
© 2022 Cengage ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c.  Occupational fees are applicable to trades or businesses and are licenses to practice. Most are
not significant revenue producers, and the amounts collected are utilized to defray the cost of
regulating the profession.
d.  Customs duties are taxes on the importation of certain foreign goods. They are imposed by
the Federal government and are not found at the state and local level.
e.  Export duties are taxes imposed on the export of certain commodities (e.g., oil, coffee). They
are common in less-developed nations and are not levied by the United States.
33.  (LO 4)
a.  The United States is the only country in the OECD (Organization of Economic Cooperation
and Development) that does not have a value added tax (VAT). Over 100 countries use a
VAT. In spite of its extensive use by other countries, the adoption of a VAT by the United
States appears doubtful. Instead, the United States places high reliance on the income tax as
its major revenue source.
b.  A VAT taxes the increment in value as goods move through the production and manufacturing
stages to the marketplace. Although the tax is paid by the producer, it is reflected in the selling
price of the goods. Therefore, a VAT is a tax on consumption.
c.  Because it is an effective generator of revenue, the VAT has been criticized as leading to
more government spending.