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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
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 $620 million. The jurisdiction needs to increase its tax revenues by approximately $6.2 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 $335 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. 1. Based on a static forecast, how much incremental revenue would Jurisdiction B raise under each alternative? (Enter your answers in millions rounded to 1 decimal place.) Incremental Revenue million A 1 percent increase in the sales tax A new 2 percent corporate income tax million
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