Question

A local tax policy establishes a preferential property tax rate for new theaters (e.g., 2% of taxable property value compared to 3% for concert halls, cinemas, and nightclubs). Which principle of sound tax policy does it primarily violate?

A) Neutrality
B) Revenue adequacy
C) Transparency
D) Stability

Answer 1

The local tax policy violates the principle of Neutrality by providing a preferential tax rate to new theaters over other entertainment venues.

Step-by-step explanation:

The principle of sound tax policy that is primarily violated by establishing a preferential property tax rate for new theaters compared to other entertainment venues like concert halls, cinemas, and nightclubs, is Neutrality. Neutrality means that tax systems should not favor one industry or activity over another, thus allowing the free market to determine which businesses succeed or fail. By providing a lower tax rate to theaters, the local tax policy is giving them a competitive advantage, which can distort the market.