Question

A not-for-profit nursing home has total expenses of $20 million. Sales tax in the state is 7%. Expenses are broken down into salaries ($12 million), supplies ($6 million), and pharmacy ($2 million). Assuming that pharmacy items are exempt from state sales tax, the benefit received by the nursing home from the sales tax exemption is:

Answer 1

$0.98 million

Step-by-step explanation:

The tax paid by a corporate or an individual to the concerned tax department is dictated by the applicable tax rate and total income earned during a given financial period. Some organizations, such as pharmacies, that are not resellers of goods are exempt from having to pay sales tax on products or services. These are typically organizations that have been formed as not-for-profit corporations. However, the expenses that have been incurred for generating a given amount of sales revenue are what is usually exempted from the applicability of respective tax.

The value of the benefit received from the sales tax exemption is given by:

= (salaries + pharmacy items amount which is exempted from sales tax)×Sales tax rate

= ($12 million + $2 million) × 7%

= $14 million × 0.07

= $0.98 million

The benefit received by the nursing home from the sales tax exemption is $0.98 million.