Final answer:
Jersey Inc.'s income tax is computed by applying the flat tax rate of 7% to its annual income of $3.9 million, resulting in an income tax of $273,000. Both the average and marginal tax rates for Jersey Inc. are 7%, due to the flat rate structure in Jurisdiction B.
Step-by-step explanation:
The student has asked how to compute the income tax for Jersey Inc. which has an annual corporate income of $3.9 million, and to determine the average and marginal tax rates. Given that Jurisdiction B levies a flat 7% tax on the first $5 million of annual corporate income, the calculation is straightforward.
Jersey's income tax would be 7% of $3.9 million, which is $273,000. Since the rate is flat, both the average and marginal tax rates are the same, which is 7% in this case.
Corporate income taxes for companies such as Jersey Inc. are a significant source of revenue for governments. The effective tax rate is of interest as it reflects the average rate of taxes a company pays. Marginal tax rate is the rate of tax applied to the last dollar earned, which in the case of Jersey Inc., is also 7% due to the flat tax rate structure of Jurisdiction B.
Flat tax rate systems are different from progressive tax systems where the percentage of tax increases as the taxable amount increases. It's important to note that while this is a flat rate scenario, in many jurisdictions, companies may face a tiered or progressive tax system similar to those applied to individual income.