The city of Springvale imposes a net income tax on businesses operating within its jurisdiction. The tax equals 1% of income up to $100,000 and 1.5% of income in excess of $100,000. The Springvale Bar and Grill generated $800,000 net income this year. Compute its city income tax.

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BlackTom AI · Accepted Answer

First, restating the problem to ensure clarity: Springvale imposes a city income tax of 1% on income up to $100,000 and 1.5% on income over $100,000. The Bar and Grill reports $800,000 in net income this year, and we must compute the city tax.
Option A: $8,000. This would correspond to applying 1% to $800,000, which is incorrect because the tax rate of 1% only applies to the first $100,000, not the entire amount. The correct approach requires higher-rate taxation on the excess over $100,000.
Option B: $10,500. Here, the calculation seems to apply 1.5% to $700,000 (the amount over $100,000) but misses the 1% tax on the initial $100,000. Specifically, 1.5% of $700,000 equals $10,500, but you still owe 1% on the first $100,000, which would add $1,000, bringing the total to $11,500.
Option C: $11,500. This matches the tiered tax structure: 1% on the first $100,000 equals $1,000, plus 1.5% on the remaining $700,000 equals $10,500, for a total of $11,500.
Option D: $12,000. This would imply either misapplying the rates (for example, taking 1% on more than $100,000) or miscalculating the overflow amount. Given the base $100,000 is taxed at 1% and the excess at 1.5%, the total cannot reach $12,000 with $800,000 income.
To recap the correct method: tax on first $100,000 at 1% is $1,000. Tax on the amount over $100,000 (which is $700,000) at 1.5% is $10,500. Add them to get $11,500. Therefore, the only choice that aligns with the stated progressive rates is $11,500.

SP25-BL-BUS-A327-1377 Quiz 1

The city of Springvale imposes a net income tax on businesses operating within its jurisdiction. The tax equals 1% of income up to $100,000 and 1.5% of income in excess of $100,000. The Springvale Bar and Grill generated $800,000 net income this year. Compute its city income tax.

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