Chapter 2, Problem 13QPD

Jurisdiction E spends approximately $7 million each winter on snow removal. The jurisdiction is considering adding a new income tax provision that would allow people to deduct the cost of snow removal equipment purchased during the year.

1. a. Does this proposed change in Jurisdiction E’s tax law meet the definition of a tax preference? Explain briefly.
2. b. Jurisdiction E forecasts that the proposed change will decrease its annual tax revenues by $250,000 but will improve the jurisdiction’s financial condition by $300,000. On what assumptions is this forecast based?