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1.4 Time Value of Money 385- Find the sales tax due on a $148.95 purchase if the tax rate is 6.95%.
- Calculate the use tax on a $749.95 computer if the tax rate is 9.15%.
E. Additional Exercises- Leo bought a new car. The price before tax was $20,357. The price after tax was $21,832.88. What was the sales tax
rate? - Create a sales tax table similar to the one shown at the end of this section for a sales tax rate of 4%.
9.2 Income and Payroll Taxes 3859.2 Income and Payroll Taxes
The 16th Amendment to the U.S. Constitution, ratified in 1913, provides
that “The Congress shall have power to lay and collect taxes on incomes,
from whatever source derived. ...” This constitutional amendment autho-
rized what has become the modern U.S. income tax system.^2 The income
tax has become an enormous source of revenue to the federal government,
and the tax code has become enormously complex, with numerous special
exceptions and rules. The income tax landscape is further complicated by
the fact that most states have some sort of personal (i.e., paid by individu-
als) income tax (the only exceptions as of this writing are Alaska, Florida,
Nevada, South Dakota, Texas, Washington, and Wyoming). Some coun-
ties and cities do as well. Corporate income taxes differ from personal
income taxes, and also vary by jurisdiction. Of course no one likes to pay
taxes, and income taxes are often singled out for particular disdain, but
however one feels about income taxes they are a major financial issue for
both individuals and businesses.
Because the tax laws are so complex, in this chapter we will cover only the basic principles
and the mathematics needed to put those principles into action. You should understand that(^2) The 16th Amendment is a popular topic with conspiracy theorists and “tax resistors” who claim on various grounds
that it was never properly ratifi ed and that the entire income tax system is therefore illegal. It is not hard to fi nd
websites that promote this idea. There have been many, many court cases where individuals have tried to use this as
a defense for not having paid their income taxes. Unsuccessfully. As appealing as not having to pay your taxes might
sound, courts have repeatedly ruled that the income tax rests on solid legal ground.
Income taxes are an unpleasant, but unavoidable,
fact of fi nancial life. © C. Sherburne/PhotoLink/
Getty Images/DIL