IAAO Course 402: Chapters 1-7 REVIEW & QUIZES QUESTIONS AND ANSWERS

In the form of government known as _____________, power is divided between central and regional governments. - Answer- Federalism ______________ is the cultural concept related to legal relationships about things that can be possessed. - Answer- Property The main difference between taxes and fees is that taxes are (BROAD / NARROW) and (PROVIDE / DO NOT PROVIDE) the tax payer a direct benefit. - Answer- Broad Do not provide The U.S. property tax system uses property value as an indicator of (INCOME / WEALTH). - Answer- Wealth When governments require vehicle emissions tests, this is an example of (PUBLIC / TAX) policy. - Answer- Public A property tax exemption for pollution control equipment is an example of (PUBLIC / TAX) policy. - Answer- Tax Describe in general terms how current property tax systems in the U.S. differ from earlier property tax systems. - Answer- Current systems are almost exclusively used to provide local, rather than state, revenue. Current systems are much narrower, in that they tend to tax tangible property more than intangible property and real property more than personal property The relative share of property tax as a funding source has declined most for (STATE / LOCAL) governments. - Answer- State Today's property tax is more likely to be a tax on (TANGIBLE / INTANGIBLE) property. - Answer- Tangible In the U.S., property tax assessment administration is more often a (LOCAL / STATE) function. - Answer- Local Two types of limits increasingly found in property tax systems are limits in ______________ and _______________. - Answer- Revenue and assessed value increases Because some school districts have more property wealth per pupil than others, states have developed _____________________ systems to level this playing field. - Answer- Equalization Democracies tend to be promoted by (CAPITALIST / SOCIALIST) economic systems. - Answer- Capitalist When a town builds and operates a wastewater treatment plant, it is providing a (PUBLIC / PRIVATE) good. - Answer- Public When the national government adjusts interest rates, it is exercising a (REDISTRIBUTION / STABILIATION) role. - Answer- Stabilization List two causes of market failure. - Answer- Lack of information about price and quality of goods Limited number of buyers and sellers List two causes of government failure. - Answer- Special interest group influences bureaucratic costs Over the last 80 years, government spending in the U.S. has tended to (INCREASE / DECREASE) in relation to gross domestic product. - Answer- Increase List three attributes of a good tax system. - Answer- Fairness Neutrality Uniformity Administratively, the functions of a property tax system are: - Answer- To identify and link taxable subjects (taxpayers) and taxable objects (property) Produce tax assessments Collect taxes Greater certainty about the law and greater accessibility to non-lawyers is a claimed advantage of which common legal system? - Answer- Civil law Which statement about the "Commerce Clause" of the U.S. Constitution is more accurate? A. It allows states to tax businesses more heavily than other types of taxpayers. B. It assigns to Congress the power to regulate foreign and interstate commerce. C. It prohibits states from taxing businesses more heavily than other types of taxpayers. D. It contains "loopholes" that preclude state or local taxes on purchases made over the Internet. - Answer- B What principal did the U.S. Supreme Court adopt when it was confronted by a situation in which the taxpayer was correctly assessed by that the property of other taxpayers generally were deliberately under-valued in Sioux City Bridge Co. v. Dakota County (1922)? - Answer- Where it is impossible to secure both the standard of the true value, and the uniformity and equality required by law, the latter requirement is to be preferred as the just and ultimate purpose of the law. Under the budget-based system for determining property tax rates, what is the rate per dollar of assessed value that would result, assuming that the budget totals $160 million, revenue from other sources is estimated to total $40 million, and the total assed value is $6 billion? A. $0.50 B. $0.0267 C. $0.02 D. $0.0333 - Answer- C What is the effective tax rate (in percent) when a property has a market value of $250,000, it is assessed at $240,000, it is entitled to a partial (homestead) exemption of $50,000, and the nominal (legal) tax rate if 1.1 percent? A. 1.06% B. 0.84% C. 1.10% D. Non of the above - Answer- B Which of the following is a good reason for making owners responsible for paying property taxes? A. The number of assessment notices is increase B. There are more changes needed in the list of assessable persons each year. C. It is easier to determine the owner of a property than its occupant. D. Property occupancy is more stable than property ownership. - Answer- C What is the difference between "in personam" and "in rem" liability for taxation? - Answer- "In personam" Liability holds that the person designated as taxpayer is liable "In rem" Liability holds that the thing that is taxed (the object/land) is itself liable. T or F The unit of assessment is the assessment district responsible for assessing assessable property within its territory? - Answer- False The unit of assessment is the part of fraction of a real estate on which a taxpayer is responsible for paying property taxes. What is annual rental value? - Answer- The annual rent (or income) that a property or premises would be expected to generate under stated assumptions, What is meant by a differential or classified assessment system? What are the two ways differentials are established? - Answer- Differential (classified) assessment system is one in which groups or classes of properties are legally taxed at different levels. The differentials are established by varying the legal assessment ratio or by varying the nominal tax rates. Residential is tax at a different rate than Commercial When considering overall fairness under an "in personam" market value-based property tax, which of the following is more important? A. Ensuring that appraised values meet achievable standards of uniformity. B. Ensuring that virtually all taxable property has been discovered and listed in assessment rolls. C. Ensuring that virtually all tax bills are delivered to taxpayers. D. No single achievement is more important; all are important. - Answer- D Define federalism and name several countries with federal systems of government. - Answer- A form of government n which power is constitutionally divided between a national government and state government. U.S., Australia, Canada, Germany How does a federal system of government differ from a unitary system of government? - Answer- In a unitary government, states derive their powers from the national government. The system is hierarchical with the power of the national government suppressing that of the states and the states serving like departments of the national government. United Kingdom How do federal-state relations differ from state-local relations? How do they similar? - Answer- Differ No constitutional basis for local government and they derive their power from the states (Dillon's Rule). Similar States reside within the central government as localities reside within state governments. States aide local governments with grants and indirect aid through the tax code in a similar manner to the way national government aids state governments with grants and indirect aid through the tax code. Match the theory of federalism to the metaphor (when applicable): Coercive Federalism Pyramid Fiscal Federalism Layer Cake Dual Federalism Marble Cake Competitive Federalism CooperativeFederalism - Answer- Coercive - Pyramid Dual Federalism - Layer Cake Cooperative Federalism - Marble Cake As a percentage of general revenue, which local governments rely most heavily on charges? - Answer- Special Districts (sewer, fire, cemetary) Overall, in the U.S., which source of state and local tax accounts for the highest percentage of total tax collections? - Answer- Property Describe two means by which state governments restrict local governments' revenue raising authority in your state. - Answer- Spending limitations, elections or super-majority required for new taxes, etc. In the 1930's, delinquent ________________ taxes became very common, and many states responded by adopting _____________ taxes. - Answer- Property Sales The sales tax is intended to be a tax on consumers, but in practice it is often also applied to purchases by _______________. - Answer- Businesses The sales tax is regressive because ______________________________. - Answer- The poor spend more on goods relative to their income (less on saving and services). States attempt to reduce the regressively of the sales tax by: (list three) - Answer- Exempting groceries or medicine Taxing some services Providing offsetting income tax credits for the poor. A major threat to state sales tax collections comes from _____________________________________________________________________________. - Answer- Not collecting sales tax from remote purchases by mail order or over the internet The sales tax is usually less unpopular than the property tax or the income tax because _______________________ and ______________________. - Answer- is paid in small amounts and there is NO annual bill State income tax base definitions usually conform closely to _________________________________________. - Answer- Federal tax law The two features of state tax law that can make the income tax progressive are: - Answer- Tax exempt amount of income Graduated rate structure Taxes on cigarettes and liquor are regressive because : (List two) - Answer- Poor spend a larger fraction of their income on these goods. Unit tax is larger share of the low priced good poor buy. Taxes levied on a "unit" basis have revenue problems over time because ________________________________________________. - Answer- Revenue does not grow with prices or income like other taxes. The __________________ approach starting point includes value judgements. - Answer- Normative The __________________ approach is purely factual without judgements. - Answer- Positive The type of Forecast Analysis that is based on judgement & history. - Answer- Qualitative Techniques Naive - historical relationships Consensus - collective agreement INSIDE department Expert - collective agreement OUTSIDE department Delphi - predictions reconsidered after other experts comment on forecasts. The type of Forecast analysis that is based on numbers. - Answer- Quantitative technique Trend - long term; historical Time - data collected @ equally spaced intervals Regression - historical relationships between revenue & variables Econometric - more complex regression using multiple sources of information List FOUR types of Analytical studies. - Answer- Behavioral changes - tobacco tax effects Incidence or shifting - taxes may shift to consumers Subpopulations - taxes may effect income groups, regions, industries differently Economic effects - decisions where to live or locate a business What is Tax Burden? - Answer- The amount owed or to be paid from the imposition of a tax. What is Tax Incidence? - Answer- Measures the distribution of the tax burden - Who pays? What are the three sources of State & Local revenue? - Answer- General - all except liquor, public utility & unemployment Intergovernmental - grand & aide from federal gov't. Own - source - taxes, fees and misc. revenue Define Sumptuary Tax: - Answer- Tax on consumption (alcohol, tobacco, gambling). This is considered inelastic - people are going to buy it no matter the cost. General revenue is all government revenue except ______________, _______________, and __________________ revenue. - Answer- Utility, liquor store, and insurance trust Intergovernmental revenue is mainly __________________________________________________. - Answer- Revenue sharing and grants (Federal shares w/ State) Own source revenue is all general revenue except _______________________________. - Answer- Intergovernmental revenue The principal type of own source revenue for local governments is the ____________________ tax. - Answer- Property The principal types of own source revenue for state governments are the ______________________________ and __________________________ taxes. - Answer- General sales and individual income Comparing state and local government revenue in 1927 to those in 2007, or any distant years, would be misleading without adjusting for: (Name three) - Answer- Price inflation Population growth Economic (income) growth When presenting revenue burdens across states, there are two basic conventions for how to present comparable numbers. Burdens can be expressed in amounts that are either _______________________ or _________________________. - Answer- Per capita (divided by population) Per $1000 of personal income A method for getting a more standardized measure of tax capacity than personal income is called the ___________________________________________. - Answer- Representative tax system A comparison of actual tax collections to tax capacity results is something called _________________________________________. - Answer- Tax effort The _______________________ incidence of a tax is on the person statutorily responsible for paying, while the ____________________ incidence reflects who actually pays the tax. - Answer- Legal Economic Shorten equilibrium analysis focuses on the item being taxed and is deemed (PARTIAL / GENERAL) equilibrium analysis. - Answer- Partial When the poor pay higher proportions their income in tax, the tax is considered (PROGRESSIVE / REGRESSIVE). - Answer- Regressive Tax exemptions that reduce tax collections are considered __________________________________. - Answer- Tax expenditures Income tax often is structured so that higher income taxpayers pay higher rates. This an example of (VERTICAL / HORIZONTAL) equity considertions. - Answer- Vertical The principle under which a tax should not influence economic decisions is (NEUTRALITY / BALANCE). - Answer- Neutrality A major advantage of the property tax, especially during economic downturns is (ELASTICITY / INELASTICITY). - Answer- Inelasticity T or F Who pays the tax is independent of the legal liability of the tax. - Answer- True T or F The idea that households who are economically better off should pay more taxes in called horizontal equity. - Answer- False T or F A sales tax on vintage French wine is probably regressive. - Answer- False T or F Tax expenditures are measures of the value of "loopholes" of a particular tax. - Answer- True T or F Economic incidence is more important than statutory incidence when tax analysis is done. - Answer- True T or F Empirically, the income tax has greatly affected the supply of labor in the United States. - Answer- False T or F Of the criteria presented for evaluating a property tax system, the principles of neutrality and harmony with social and economic policies may be in conflict. - Answer- True A type of system where tax is based on budgetary needs. - Answer- Budget Driven System Budget$ / Assessed Value = Levy Rate If assessed value increases, the levy rate decreases - budget stays the same. The type of system where the tax based on fixed rate is applied to value. - Answer- Rate Driven System Assessed Levy x Levy Rate = Budget$ Budget changes directly with change in underlay values. More sensitive to reappraisal changes. What are ways to achieve Market Value? - Answer- Annual assessment Use of AVM's and CAMA Reappraise on regular cycles Quality thresholds versus regular cycle. What are alternatives to Current Market Value? - Answer- Base year appraisal Cyclic reappraisal (ex: Missouri 1/3 every 2 years) Frozen valuation - limits the cap of increase Acquisition value - value at the time acquired An assessment system in which fractional ratios are applied to appraised values ____________________________. - Answer- B (classification) A valuation system in which adjustments to market value occur mostly upon sale of the property ________________________. - Answer- A (acquisition value) The value concept that captures the dynamics of changes in underlying property wealth ________________________________. - Answer- H (current market value) A system in which the property tax rate "floats" _______________. - Answer- C (budget driven) A system that tends to generate more property tax revenue when assessed values increase ______________________. - Answer- D (rate driven) An assessment system that under-assesses residential property even though such underassessment is not permitted by law is providing a ____________________________. - Answer- G (de facto exemption) A $25,000 homestead exemption is an example of a _____________________. - Answer- F (partial exemption) There is generally more openness in property tax systems that provide for _____________________________. - Answer- E (truth in taxation) A form of economic incentive often used to revitalize depressed areas _______________________________. - Answer- I (tax increment financing) T or F Appraisals done for property tax purposes are always intended to reflect market value. - Answer- False T or F Assessments and appraisals are usually close to current market value in a "model" assessment system. - Answer- True T or F Although often no longer used for state funding, NO U.S. state or Canadian province has done away with property tax. - Answer- True T or F Property tax systems based on current market value are less likely to need measures to address ability to pay issues. - Answer- False T or F Assessed value increase constraints allow the property tax distribution to more nearly reflect current economic conditions. - Answer- False T or F Assessments are more closely tied to the magnitude of property tax in a budget-driven system. - Answer- False T or F Exemptions distort the economic realities of other property tax and are NEVER justified. - Answer- False T or F Although business personal property is taxable in most states, it is difficult to track and frequently omitted. This is an example of a de facto exemption. - Answer- True T or F Tax abatements create economic incentive for selective development, but can lead to competitive advantages over existing businesses. - Answer- True Current market value assessment systems are more concerned with the MAGNITUDE / DISTRIBUTION of the property tax. - Answer- Distribution Property taxes typically are more predictable under CURRENT MARKET VALUE / ACQUISITION VALUE based systems. - Answer- Acquisition Value Assessed value increases are more closely tied to tax and revenue increases in a RATE / BUDGET driven system. - Answer- Rate driven A system that requires taxing districts to clearly