General sales tax-two of which have corporate income tax

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Reference no: EM131251336

Jurisdiction B’s tax system consists of a 6.5 percent general sales tax on retail goods and selected services. Over the past decade, the average annual volume of sales subject to this tax was $860 million. The jurisdiction needs to increase its tax revenues by approximately $8.6 million each year to finance its spending programs. The taxing authorities are considering two alternatives: a 1 percent increase in the sales tax rate or a new 2 percent tax on the net income of corporations doing business in the jurisdiction. Based on recent economic data, the annual net income subject to the new tax would be $455 million. However, the jurisdiction would have to create a new agency responsible for enforcing and collecting the income tax. The estimated annual cost of the agency is $500,000. Jurisdiction B borders four other taxing jurisdictions, all of which have a general sales tax and two of which have a corporate income tax.

Based on a static forecast, how much incremental revenue would Jurisdiction B raise under each alternative?

ENTER IN MILLIONS TO 1 DECIMAL POINT

1.A 1% increase in sales tax =

2. A new 2% corporate tac income=

Reference no: EM131251336

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