So let`s change. The tax is exactly the same as before. Let`s move the demand curve down the tax amount. We now see that the new equilibrium is at point B. First of all, note that the amount has decreased. The quantity exchange decreased by exactly the same amount as in the previous problem. What about the price sellers receive? This award is now given to sellers. And that`s it, it`s exactly the same price as before. What about the price paid by buyers? Buyers now pay what they used to pay to suppliers, and they have to pay the tax to the government. This distance is the tax. And that`s it, the after-tax price paid by buyers is still exactly what it was when the tax fell on suppliers. When the tax falls on buyers, buyers pay more than before.
Sellers receive less than before exactly the same amounts. The quantity also decreases by the same amount. The net price or the total price paid by buyers is the same. The total price sellers receive is the same. Whether or not a property is taxable can be important in determining whether or not to remove the use tax added to an out-of-state FlexCard transaction. So how does a fee affect applicants? Think of it this way. Let`s say the highest amount you were willing to pay for an apple is $1. Again, most are willing to pay for that apple, a dollar, no more. Now suppose you learn that the government has introduced a new tax. For every apple you buy, you now have to pay 25 cents to the government. Well, how much are you willing to pay suppliers for this apple? You are only willing to pay the maximum amount you are willing to pay to suppliers is now 75 cents.
The maximum amount Apple was worth to you is one dollar. If you know that you will be taxed 25 cents if you buy this apple, then at most you will be willing to pay the supplier 75 cents, because 75 cents plus the 25-cent tax to the government, or $1. This is the highest you are willing to pay to get the apple. In other words, a tax on applicants reduces their willingness to pay, which means that the demand curve shifts. In what direction? The demand curve moves downward around the amount of the tax. I have not said here who actually pays the tax. We will talk about it in the next conference. What I have said here is that, from a legal point of view, it does not matter who pays the tax, who is obliged to deliver that money. The legal impact therefore has no influence on the economic impact of the tax. What we will be talking about in the next conference is what determines the economic impact of a tax.
It turns out that these are elasticities of supply and demand, and we will come back to this in the next conference. Thank you again for your attention. Today, we begin the first of several conversations about taxes and subsidies. We are not going to talk about income taxes and income subsidies. These are typical topics of macroeconomics. Instead, we will talk about taxes and subsidies on goods, such as a sales tax or a subsidy for wheat. These are also known as product taxes and subsidies. So here we go. Since date 3, the taxable person has agreed to sell electricity to X, which X supplies to its establishment A close to site 1. X planned to build a power plant near its smelter to ensure the availability of electricity, but did not want to operate the plant. X and a predecessor of the taxpayer, B, entered into a contract under which the taxpayer was to operate X`s power plant at Site 1 (later known as Unit A).
X and the taxable person concluded an electricity contract requiring the taxable person to construct certain transmission lines and to supply electricity to X`s metallurgical activity. It also allowed the taxpayer to sell some excess energy beyond the energy used for the smelter. In addition, X acquired certain fuel reserves and mining assets from the taxpayer, which allowed X to develop and own what became a mine. X owned Unit A and the mine, but the taxpayer and his successors operated both plants under contract. How much do suppliers receive? The suppliers collect that amount, the price paid by the buyers, but now they have to give a certain amount, the tax to the government. Suppliers receive this amount after taxes, here. In other words, what the tax does means that buyers pay more than before and sellers receive less than before. Without taxes, the price paid by buyers is the same as the price the supplier receives. With the tax, buyers pay a certain price, but sellers get less than that.
You get what buyers pay, minus tax, of course. This is the situation where suppliers have to pay the tax or suppliers have to send the cheque to the government. Another way to put it is that the economic impact of the tax on who actually pays the tax does not depend on the legal impact, which is legally required to write the cheque to the government. This will become a little clearer over time. Don`t worry if it`s not clear yet. The second important point, who pays the tax, depends on the relative elasticities of supply and demand. In fact, we can summarize the first and second point by saying that who pays the tax does not depend on the laws of Congress, but on the laws of supply and demand. The third point is that taxing goods increases revenues, but it also takes away profits from trade, that is, it creates deadweight effects. We`ll look at the first point of this conversation, and then move on to point two and point three in subsequent conversations. The IRS identified four issues related to the application of mark-to-market rules to the taxpayer: (1) whether the taxpayer was a dealer in goods within the meaning of section 475; (2) whether the toll agreement concluded between the taxable person and X or certain elements thereof constitute goods or evidence of an interest in goods within the meaning of Article 475; (3) whether the treatment at market value by the taxable person clearly reflected the taxable person`s income within the meaning of Article 446; and (4) whether the taxpayer`s position with respect to the toll agreement has created a conflict with the taxpayer`s ability to generate electricity. In Chief Counsel Advice (CCA) 201132021, the IRS analyzed whether a taxpayer had correctly applied the mark-to-market treatment under Section 475(e) to certain parts of a contract (the toll agreement).
The IRS concluded that the toll agreement was not a commodity and that the mark-to-market treatment of the agreement did not clearly reflect income. However, the IRS requested more information before determining whether the taxpayer should be classified as a commodity trader due to other activities. There is actually an easier way to think about it. What we can think of such a tax is to drive a gap between what the buyer pays and what the sellers receive. If there is no tax, buyers pay what sellers receive, but if there is tax, buyers pay more than sellers receive. The difference is what the government gets. The difference is the amount of tax. Let`s see it as a corner of control. Let`s say this tax wedge, this page is, let`s say, a dollar. Another way to analyze the tax is to push that wedge into the chart until the top of the corner meets the demand curve and the bottom of the corner only touches the supply curve. The IRS has agreed with the auditor that the agreement is not a commodity under Section 475(e)(2)(C) and that it is a cost of service contract. According to the IRS, the toll agreement is not separable under current state law and, if separated, would not be like a futures contract or futures contract because the regulations are not based on market prices.
Instead, the IRS found that provisions are based on the cost of services and electricity prices are below market prices. Thus, the toll contract cannot be marked for traffic under Article 475, even if the taxable person was a dealer in goods. In addition, the IRS pointed out that the taxpayer filed a Section 475(e) election Form 3115, in which the taxpayer stated that he was a concessionaire of gas retail contracts and could also sell electricity to customers other than X. The IRS concluded that the auditors appeared to have inappropriately based their conclusion that the taxpayer was not a commodity dealer on its toll contract activities. According to the IRS, once an election has been made under Section 475(e), a taxpayer must mark for marketing all products under Section 475(e)(2) that have not been specifically identified as held for investment or otherwise exempt from labeling. Therefore, if it is established that the taxable person is a commodity trader by virtue of his sale of electricity outside the toll agreement, all other goods must be marked, whether or not the taxable person is a trader in those goods, unless the goods have been duly marked as exempt from labelling. Possible application of overlap rules: The IRS agreed with the auditor`s conclusion that the taxpayer`s obligation to sell electricity under the toll agreement is an overlap that offsets the taxpayer`s ability to generate electricity.