Chapter 1 1. Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance. a. True b. False ANSWER: True 2. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations. a. True b. False ANSWER: False 3. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals. a. True b. False ANSWER: False 4. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 1% to a high of 6%. a. True b. False ANSWER: True 5. The Federal income tax on individuals generates more revenue than the Federal income tax on corporations. a. True b. False ANSWER: True 6. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith’s canon (principle) of certainty. a. True b. False ANSWER: False 7. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages increase. a. True b. False ANSWER: False 8. The Federal estate and gift taxes are examples of progressive rate taxes. a. True b. False ANSWER: True 9. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive). a. True b. False ANSWER: False 10. Currently, the Federal corporate income tax is less progressive than the individual income tax. a. True b. False ANSWER: True 11. Mona inherits her mother’s personal residence, which she converts to a furnished rental house. These changes should affect the amount of ad valorem property taxes levied on the properties. a. True b. False ANSWER: True 12. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty. a. True b. False ANSWER: False 13. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same. a. True b. False ANSWER: True 14. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty. a. True b. False ANSWER: True 15. An excise tax is often used to try to influence behavior. a. True b. False ANSWER: True 16. There is a Federal excise tax on hotel occupancy. a. True b. False ANSWER: False 17. The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States. a. True b. False ANSWER: False 18. The amount of the state excise taxes on gasoline varies from state to state. a. True b. False ANSWER: True 19. Not all of the states that impose a general sales tax also have a use tax. a. True b. False ANSWER: False 20. Sales made over the internet are not exempt from the application of a general sales (or use) tax. a. True b. False ANSWER: True 21. Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate. a. True b. False ANSWER: True 22. States impose either a state income tax or a general sales tax, but not both types of taxes. a. True b. False ANSWER: False 23. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes. a. True b. False ANSWER: False 24. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an inheritance tax, both taxes, or neither tax. a. True b. False ANSWER: True 25. An inheritance tax is a tax on a decedent’s right to pass property at death. a. True b. False