### Chapter 2 Review Exercises

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• 17. Finding a Sales Tax

In many places, cigarettes are exempt from sales tax. However, some tax jurisdictions charge sales tax on cigarettes in addition to an excise tax. For instance, retailers in Colorado charge a 2.9% state sales tax on cigarettes. What is the sales tax on a \$5.50 pack of cigarettes in Colorado?

• Worked-Out Solution

The sales tax is \$0.16.

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```            _____    __   __     ___      ______
___    |  ___||  \ \\/ //   / _ \\   /_   _//
/   ||  | ||__     \   //   / //\ \\  `-| |,-
| [] ||  | ||__     / . \\  |  ___  ||   | ||
\__ ||  |_____||  /_//\_\\ |_||  |_||   |_||
-|_||  `-----`   `-`  --` `-`   `-`    `-`'
`-`
```
• 18. Finding a Sales Tax Rate

A convenience store charges \$5.75 for a pack of cigarettes. The sales receipt shows that you paid a total of \$5.98 including \$0.23 in sales tax. Find the sales tax rate.

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```  _____      ___     _    _      ___
/  ___||   / _ \\  | \  / ||   / _ \\      ___
| // __    | / \ || |  \/  ||  | / \ ||    /   ||
| \\_\ ||  | \_/ || | .  . ||  | \_/ ||   | [] ||
\____//    \___//  |_|\/|_||   \___//     \__ ||
`---`     `---`   `-`  `-`    `---`       -|_||
`-`
```
• 19. Finding an Excise Tax

A customer buys four packs of cigarettes in Tennessee. How much does the customer pay in federal and state excise taxes?

• Worked-Out Solution

The total the customer pays in state and federal excise taxes is

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```             ___     _____     _    _
____      / _ \\  |  __ \\  | || | ||   ____
|    \\   / //\ \\ | |  \ || | || | ||  |    \\
| [] ||  |  ___  ||| |__/ || | \\_/ ||  | [] ||
|  __//  |_||  |_|||_____//   \____//   |  __//
|_|`-`   `-`   `-`  -----`     `---`    |_|`-`
`-`                                     `-`
```
• 20. Finding Federal and State Excise Taxes

In Connecticut, a customer purchases 2 packs of cigarettes for \$11.50. What percent of the cost is allocated to federal and state excise taxes?

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```  _  _    __   __    ____      _____     _  __
| \| ||  \ \\/ //  |  _ \\   |  ___||  | |/ //
|  ' ||   \ ` //   | |_| ||  | ||__    | ' //
| .  ||    | ||    | .  //   | ||__    | . \\
|_|\_||    |_||    |_|\_\\   |_____||  |_|\_\\
`-` -`     `-`'    `-` --`   `-----`   `-` --`

```
• 21. Comparing Excise Tax and Value-Added Tax

How is an excise tax different from a value-added tax?

• Worked-Out Solution

A value-added tax is a type of ad valorem tax, which means that it is a percent of the value.

An excise tax is normally based on the quantity being sold (gallons of gasoline or packs of cigarettes), and is not dependent on the price of the gasoline or cigarettes.

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```  ____       ___     _    _     _____   __    __
|  _ \\    / _ \\  | |  | ||  |  ___|| \ \\ / //
| |_| ||  | / \ || | |/\| ||  | ||__    \ \/ //
| .  //   | \_/ || |  /\  ||  | ||__     \  //
|_|\_\\    \___//  |_// \_||  |_____||    \//
`-` --`    `---`   `-`   `-`  `-----`      `

```
• 22. Increase in Excise Tax

In 1995, the federal excise tax on a pack of cigarettes was \$0.24.

1. Use a percent to describe the change in the federal excise tax from 1995 to 2010.
2. How might the government justify the increase?

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```  _____     _____    __   _     ______   _    _