What tax rate is used in the example calculation?

• A. 8.75%
• B. 7.5%
• C. 6.5%
• D. 9.0%

Answer: (A)

The key idea is how tax is computed: tax equals the rate applied to the taxable base. To see which rate was used in the example, reverse the calculation. Take the tax amount shown and divide it by the taxable base; the resulting ratio is the rate that was applied. The option that, when applied to the base, reproduces the exact tax shown in the example is the one that matches. If you test the other rates, they would produce a different tax amount, so they don’t fit. If the example involves rounding, expect a tiny difference for rates that would be exact before rounding. In short, the correct rate is the one that aligns with the tax amount given when you relate it to the base.