Page 192 - Business Principles and Management

Chapter 7 • Legal Aspects of Business

EFFECT OF TAXES ON BUSINESS DECISIONS
Businesses consider taxes in many of their major deci-
sions. Taxes may influence the accounting method a
business selects to calculate profits and the method
used to pay managers. Often, taxes are used as a The U.S. government’s Internal Revenue Service
basis for deciding where to locate a new business or (IRS) is charged with collecting taxes owed to
whether to move a business from one location to the federal government. The IRS maintains a
another. Web site to help ensure that individuals under-
For example, assume that a producer of garden stand how to comply with complex tax rules.
tools is trying to decide in which of two cities to Point your browser to www.thomsonedu.com/
build a new factory. City A is located in a state that school/bpmxtra. Click on the “site map” link.
has a low state income tax and low property taxes. Identify the different information areas that
City B is located in a state with no state income tax the site supports. Choose an information area
but high property taxes. After weighing all the fac- of interest to you. Explain how this site helps
tors, the producer decides to locate in City A. City individuals and companies comply with tax
A, which has both an income tax and a property regulations.
tax, has been selected mainly because the total tax
cost each year is less than in City B. www.thomsonedu.com/school/bpmxtra

CHECKPOINT

Describe the three most common taxes levied on businesses
and individuals.

7.3 Assessment

UNDERSTAND MANAGEMENT CONCEPTS
Circle the best answer for each of the following questions.
1. A tax based on a person’s ability to pay is called a
a. proportional tax
b. flat tax
c. progressive tax
d. regressive tax
2. The largest source of revenue for the federal government is
a. sales taxes
b. income taxes
c. import taxes
d. property taxes

THINK CRITICALLY
Answer the following questions as completely as possible.
3. Describe the two ways governments use taxes.
4. Explain how taxes affect business decisions.

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