The city of Clement levies a 5 percent tax on the base price of rooms provided b

Question

The city of Clement levies a 5 percent tax on the base price of rooms provided by hotels and motels located within the city limits. This year, the aggregate room price subject to tax was $33 million, so current year revenue was $1.65 million. Clement’s city council recently voted to increase the hotel tax rate to 6 percent for the next fiscal year. Compute next year’s hotel tax revenue assuming next year’s tax base equals the current year base. Compute next year’s hotel tax revenue assuming next year’s tax base decreases to $30 million. Compute next year’s hotel tax revenue assuming next year’s tax base decreases to $27 million.

Explanation / Answer

A)Tax revenue assuming current year tax base = 33 *.06

                           = $ 1.98 million

B)tax revenue assuming next year’s tax base decreases to $30 million = 30 *.06

                 = $ 1.80 million

c)hotel tax revenue assuming next year’s tax base decreases to $27 million = 27 *.06

                  = $ 1.62 million

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