legal aspects of business chapter 7 - warren county public

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C h a p t e r

7Legal Aspects of Business7.1 Regulations Maintaining Competition7.2 Regulations Protecting Business and the Public7.3 Business Taxes

R E A L I T Y C H E C K

Legal Limits for a Taxi Business

Deion Banks, who owned a small taxi business in his hometown, wasmeeting for lunch with his lawyer, Laura Maddox. He needed to dis-cuss several matters that had arisen during the past few weeks. While

waiting for the server, Laura said, “You seem quite upset.”Deion sat back and replied, “I am, Laura. Here are the new tax forms

that need to be filled out. And that’s the easy part. Would you check withthe town officials to see why they want to review my franchise before Ibuy another cab? Also, while you’re at the Town Hall, see what you cando to prevent those officials from giving another taxi firm a license to operate. This town isn’t big enough for two taxi companies. I’ll get lessbusiness, and it will probably force down my fares. If there is a chance of going bankrupt, I should probably move my business across the river.The income tax rate in that state is much lower.”

“Don’t do anything drastic,” said Laura. “Let me see what I can find out from our government officials. I’ll get back to you in a few days withboth your tax forms and the answers to your questions.”

Deion Banks, like other business owners, must operate within the law.Laws that regulate business cover both products and services, and theygovern general relationships of businesses with competitors, consumers,employees, and the public. Deion Banks’s taxi business is no exception.He currently benefits from being the only taxi company in town, but henow feels threatened. The town may, indeed, allow someone else the rightto open a competing firm. So what can Deion do?

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7. 1 Regulations Maintaining CompetitionGoals• Explain how federal laws help

regulate monopolies.• Explain how federal laws help

promote fair competition.

Terms• monopoly• natural monopoly• price discrimination

• false advertising• bankruptcy

Unit 2

Deregulation of the telecommu-nications industry has helped

benefit consumers throughlower prices and improved

phone services. Are cellular telephone prices deregulated?

In the following pages, you will learn how government encourages free enter-prise by controlling monopolies and promoting competition. You will alsolearn how the government protects the general public as well as business.

Like Deion, you will learn about taxes and how taxes influence business decisions.

Regulating MonopoliesCompetition is the rivalry among companies for customers’ dollars. Competition,however, does not always operate smoothly by itself. To provide for fair competi-tion, government has passed laws and created regulations to enforce the laws.These laws and regulations grow out of a need to preserve competition, which is done, in part, by controlling monopolies and unfair business practices. Firmsthat cannot survive in a competitive atmosphere either go out of business or facebankruptcy.

CONTROLLING MONOPOLIESA monopoly exists when only one company provides a product or service with-out competition from other companies. Without competitors, the one producercan control the supply and price of the product or service. By controlling thesupply of an item, a single producer can set a price that will generate the great-est profit. In a monopoly situation, such as Deion Banks’s taxi company, theprices are generally very high. Without competitors to lure customers away withlower prices, the monopolistic company can raise its price as high as it wants.If customers want the product or service, they have no choice but to pay themonopolist’s price.

In actual practice, however, few monopolies exist, because of the effec-tiveness of competition. To illustrate, assume a business offers a new productthat no other business does. The product suddenly becomes quite popular.The prospect of profits to be made entices other companies to enter the mar-ket to help meet the demand. A temporary monopoly will exist until thosecompetitors can produce and sell similar products. Usually, through competi-tive pricing, the more efficient companies will attract the greatest number ofpurchasers, whereas the less efficient may struggle for survival or go out ofbusiness. Even if some competitors fail, however, a monopoly will not existas long as there are at least two or more producers.

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Promoting Fair CompetitionOne way to promote competition is to limit the number of monopolies createdand controlled by government. Monopoly conditions can also arise when busi-nesses compete too harshly or unfairly. A large, powerful business can lower itsprices deliberately to drive out competitors, thereby discouraging competition.Thus, the federal government supports business practices that encourage compe-tition and discourage monopolies. To achieve this goal, government has passedimportant laws and created agencies to enforce the laws.

SHERMAN ACTThe first major law promoting competition was the Sherman Antitrust Act of1890. One of its primary purposes is to discourage monopolies by outlawingbusiness agreements among competitors that might tend to promote monopolies.

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NATURAL MONOPOLIESIn some situations, a natural monopoly may be better for consumers than compe-tition because of the large cost involved in developing or supplying a product orservice. These situations usually involve providing public services, such as publicutilities, which have a fairly stable demand and which are costly to create.

A natural gas company, for example, must build hundreds of miles of pipelinealong streets and roads in order to deliver gas to homes and industries to fuel furnaces and stoves. If two or three gas companies incurredthese same costs to sell gas to a relatively fixed number ofcustomers, the price of gas would be higher than if only onecompany existed. Also, installing and maintaining so manypipelines would create nuisance problems along crowdedstreets and highways. In these types of situations, the govern-ment grants a monopoly to one company, regulates the pricesthat the company can charge, and influences other companypolicies.

Until recently, the federal government had approved of closely regulated monopolies, such as the postal system, utility companies, railroads, and communication firms.However, the trend has shifted from allowing monopolies to weakening or eliminating them in order to encouragecompetition. No longer, for example, are passenger fares oncommercial airlines regulated. As a result, fares have gener-ally dropped. Even telephone service, the trucking industry,and railroads have been deregulated. Today utilities are un-dergoing deregulation. Firms such as Cingular and Sprintoffer communication services at competitive prices and com-pete fiercely. The result overall has been that consumers paylower prices and have more services from which to select.

CHECKPOINTDescribe the reasons that society may want to allow a natural monopoly.

At one time the telecommunications (tele-phone) industry was viewed as a naturalmonopoly. American Telephone & Telegraph(AT&T) was given the public monopoly. In1984, competitor lawsuits forced AT&T to be broken into seven Baby Bells. The rise ofindependent cellular phone companies hascreated enough competition to allow someBaby Bells to merge back into larger compa-nies, even forming a new AT&T. How hasthe breakup of AT&T affected communica-tion in the United States?

business n o t e

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For example, agreements among competitors to set selling prices on goods are un-lawful. If three sellers met and agreed to set the same selling price on the sameproduct each sold, they would all be violating the Sherman Act.

CLAYTON ACTLike the Sherman Act, the Clayton Act of 1914 was aimed at discouraging monop-olies. One part of the law forbids corporations from acquiring ownership rights inother corporations if the purpose is to create a monopoly or to discourage competi-tion. Corporation A cannot, for example, buy more than half the ownership rightsof its main competitor, Corporation B, if the aim is to severely reduce or eliminatecompetition.

Another section of the Clayton Act forbids business contracts that requirecustomers to purchase certain goods in order to get other goods. For example, abusiness that produces computers cannot require a buyer also to purchase sup-plies, such as paper and software, in order to get a computer. Microsoft Corpora-tion was charged with such a violation. Microsoft required computer makers thatwanted to buy its dominant Windows operating system to also accept its InternetExplorer browser. The result of this action was to severely damage the sales ofNetscape’s Navigator browser, which was Microsoft’s dominant competitor.

ROBINSON-PATMAN ACTThe Robinson-Patman Act of 1936 amended the portion of the Clayton Actdealing with the pricing of goods. The main purpose of the pricing provisions inboth of these laws is to prevent price discrimination. For example, a seller can-not offer a price of $5 a unit to Buyer A and sell the same goods to Buyer B at$6 a unit. Different prices can be set, however, if the goods sold are different inquality or quantity. Buyer A is entitled to the $5 price if the quantity purchasedis significantly greater or if the quality is lower. The same discounts must thenbe offered to all buyers purchasing the same quantity or quality as Buyer A.

WHEELER-LEA ACTIn 1938, the Wheeler-Lea Act was passed to strengthen earlier laws outlawingunfair methods of competition. This law made unfair or deceptive acts or prac-tices, including false advertising, unlawful. False advertising is advertising thatis misleading in some important way, including the failure to reveal facts aboutpossible results from using the advertised products. Under the Wheeler-Lea Act,it is unlawful for an advertiser to circulate false advertising that can lead to thepurchase of foods, drugs, medical devices, or cosmetics, or to participate in anyother unfair methods of competition.

FEDERAL TRADE COMMISSIONThe Federal Trade Commission (FTC) was created as the result of many busi-nesses demanding protection from unfair methods of competition. The FTCadministers most of the federal laws dealing with fair competition. Some of theunfair practices that the FTC protects businesses from are shown in Figure 7-1.

OTHER FEDERAL AGENCIESIn addition to the FTC, the federal government has created other agencies to ad-minister laws that regulate specialized areas of business, such as transportation andcommunication. Figure 7-2 lists some of the more important agencies.

It is illegal for competingcompanies to discuss pricingstrategies. This can be seenas collusion, or attemptingto fix prices, and can result in fines or jail time.

Ethics tip

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1. Any act that restrains trade.

2. Any monopolies except those specifically authorized by law, such

as public utilities.

3. Price fixing, such as agreements among competitors.

4. Agreements among competitors to divide territory, earnings, or

profits.

5. Gaining control over the supply of any commodity in order to create

an artificial scarcity.

6. False or misleading advertising.

7. Imitation of trademark or trade name.

8. Discrimination through prices or special deals.

9. Pretending to sell at a discount when there is no reduction in price.

10. Offering so-called free merchandise with a purchase when the price

of the article sold has been raised to compensate for the free

merchandise.

11. Misrepresentation about the quality, the composition, or the place

of origin of a product.

12. Violation of one's guarantee of privacy of information on the Internet,

including e-mail.

FIGURE 7-1 Types of Practices Prohibited by the Federal Trade Commission

FEDERAL AVIATION ADMINISTRATION

Safety standards, airplane accidents, and take-offs and landings

FEDERAL COMMUNICATIONS COMMISSION

Radio, television, telephone, telegraph, cable, and satellite communications

FOOD AND DRUG ADMINISTRATION

Foods, drugs, medical devices, cosmetics, and veterinary products

NUCLEAR REGULATORY COMMISSION

Nuclear power plants

SECURITIES AND EXCHANGE COMMISSION

Stocks and bonds

AGENCY AND REGULATION

Some Federal Agencies That Regulate Business

FIGURE 7-2 Laws promoting fair practices that benefit businesses andconsumers are enforced by government agencies.

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PROVIDING BANKRUPTCY RELIEFAll firms face the risk of failure. The free-enterprise system permits unsuccessfulbusinesses to file for bankruptcy as a means of protecting owners and others.Bankruptcy is a legal process that allows the selling of assets to pay off debts.Businesses as well as individuals can file for bankruptcy. If cash is not availableto pay the debts after assets are sold, the law excuses the business or individualfrom paying the remaining unpaid debts. In such a case, all those to whom moneyis owed would very likely receive less than the full amount.

A bankruptcy judge can permit a company to survive bankruptcy proceed-ings if a survival plan can be developed that might enable the firm to recover. As a result, after starting bankruptcy proceedings, many firms do survive.However, bankruptcy carries serious consequences. The business will have abad credit rating. A record of the unpaid debts will stay on file for 10 years,and the business may not file for bankruptcy again for eight years. As a result,the business will have difficulty obtaining credit.

CHECKPOINTList the four federal acts that are designed to promote fair competition.

U N D E R S TA N D M A N A G E M E N T C O N C E P T SCircle the best answer for each of the following questions.

1. A _________ exists when only one company provides a product orservice without competition from other companies.a. oligopolyb. monopolyc. monogamyd. none of the above

2. The ________ protects businesses from unfair methods of competition.a. Federal Trade Commission (FTC)b. Federal Competition Commission (FCC)c. Federal Transportation Commission (FTC)d. Federal Monopoly Commission (FMC)

T H I N K C R I T I C A L LYAnswer the following questions as completely as possible.

3. Explain why monopolies are bad for a society.

4. Describe how bankruptcy works for debtors andcreditors.

Assessment7. 1

thomsonedu.com/school/bpmxtra

&factsfigures

In 2005, more than 39,000 U.S.businesses filed for bankruptcy.The state with the most busi-ness bankruptcy filings was California, with 4,236; the state with the least filings was Virginia, with 7.

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7. 2 Regulations Protecting Business and the PublicGoals• Explain how patent, copyright,

and trademark protection benefitsbusiness.

• Describe the ways in which govern-ment regulations protect consumers.

• Describe three methods used bystate and local governments to regulate business.

Terms• patent• copyright• trademark• information liability• cookies• interstate commerce

• intrastate commerce• licensing• public franchise• building codes• zoning


In the previous section, you learned about regulations that help to make theeconomic system work by establishing rules of fair competition. In this section,you will learn about regulations that protect those who create goods and

services and those who use them.

Intellectual PropertyThe federal government has passed laws to protect the rights of those who createuniquely different products and new ideas. Specifically, it grants intellectual prop-erty rights to inventors, authors, and creators of distinct symbols and names forgoods and services (see Figure 7-3).

PATENTSA patent is an agreement in which the federal government gives an inventor thesole right for 20 years to make, use, and sell an invention or a process. No oneis permitted to copy or use the invention without permission. This protection isa reward for the time and money invested to create the new product. An inventormay allow others to make or use a product by giving them a license to do so.

In a sense, through the Patent and Trademark Office, the government givesthe inventor a monopoly on newly invented products, designs, and processes.This temporary monopoly provides a profit incentive that encourages manufac-turers to spend the huge amounts of money required to research and developnew ideas. Research departments have produced many inventions. For example,Apple, Sony and other companies have developed digital players that allowusers to listen to music and view videos on display screens. Even synthetic tissueand altered vegetable plants are patentable. For example, insulin that diabeticsneed and a new rot-resistant tomato are products of biotechnology (biology plustechnology) innovations.

New processes as well as new products can be patented, but process patentingcan be undesirable at times. For example, Priceline.com, Inc., received a patentfor its auction price-bidding system on the Internet. If other companies used thissimple process, they would be violating the owner’s patent rights. However, theprocess is so fundamental to many Internet practices that competitors believe the

Are you an inventor? It ispossible for individuals topatent their inventions. Thisdoes not gaurantee success,however. An invention mustbe backed by a market needand a good marketing plan;otherwise it is just one ofthousands of patented prod-ucts with no sales potential.

Success tip

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patent is essentially unfair. Should doctors who develop a new method for heal-ing people prohibit other doctors from using it or require them to pay a licensingfee? Occasionally, the Patent and Trademark Office revokes or denies patentsthat discourage desirable competition.

Unfortunately, stealing patents is an acceptable practice in some countriesthat do not honor the U.S. patent law. As a result, American firms lose millionsof dollars. By tightening trade agreements with these countries, this great lossto American firms may begin to decline. On the other hand, patent laws differworldwide. For example, Japan’s patents promote technology sharing, whereasU.S. patents protect inventors.

COPYRIGHTSA copyright is similar to a patent in that the federal governmentgives an author the sole right to reproduce, publish, and sell literaryor artistic work for the life of the author, typically, plus 70 years.No one may publish or reproduce copyrighted work without per-mission of the copyright owner. However, the law permits occa-sional photocopying of copyrighted material for fair use. Whereasa teacher could copy a magazine article to distribute to students,articles from the same magazine could not be copied and distributedweekly throughout the school year without obtaining permission.

Copyright laws also cover electronic methods for distributingcreative work. Copyrights protect creators of CD games and music,video and audio tapes, and computer software programs, forexample. Duplicating CDs, tapes, disks, and software programs fordistribution to others is usually illegal. When an employee makes apersonal copy of a computer software program for use on a homecomputer, the employee violates the copyright law. Furthermore, ifa warning is not publicized that copying creative work such as asoftware program is illegal, the employer is also guilty.

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Intellectual Property

Motors

Mousetraps

Games

Computers

PATENTS

Names

Symbols

TRADEMARKS

Software

Novels

Histories

Poetry

Textbooks

COPYRIGHTS

FIGURE 7-3 Federal, state, and local governments grant special property rights.

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What kinds of laws protect theduplication and distribution of

computer software?

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Copyrights are regulated by the federal Copyright Office. Like a patent, acopyright is a special type of monopoly granted to authors, publishers, and othercreators of original works. An example of a copyright notice appears on the backof the title page in the front of this book.

TRADEMARKSTrademarks are like patents because they are special types of monopolies. Atrademark is a distinguishing name, symbol, or special mark placed on a goodor service that is legally reserved for the sole use of the owner. Many nationallyknown products have trademarks that most people recognize. Some trademarksare symbols, such as the Nike “swoosh” or the McDonald’s “golden arches.”Others are company or product names, such as the Sony “Walkman” or Nin-tendo’s “Game Boy.” Trademarks, like patents, are regulated by the Patent andTrademark Office.


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Trademark rights may continueindefinitely, as long as the markis neither abandoned by thetrademark owner nor loses itssignificance in the marketplaceas a trademark by becoming a generic term. For example,the generic terms escalator,linoleum, and zipper were once trademarks.

CHECKPOINTDescribe the three areas of intellectual property protection.

Regulations Protecting the PublicThe federal government protects the legal rights of not only those who create newproducts and ideas but also those who consume goods and services. Two majorgoals of legislation are to ensure safe products for consumers and to prevent themisuse of information.

FOOD AND DRUGSProducts related to the human body are closely regulated. The Food and DrugAdministration (FDA) administers the Federal Food, Drug, and Cosmetic Actand related laws. These laws prohibit the sale of impure, improperly labeled,falsely guaranteed, and unhealthful foods, drugs, and cosmetics. Producers of cosmetics, for example, must show that their products will not harm users.Should a product cause harm, the FDA may require the producer to stop itssale or to notify the public of its possible danger.

NONFOOD PRODUCTSLegislative activity dealing with the safety of nonfood products has increased inrecent years. Laws now require labels on many products if possible danger existsfrom product use. A health warning message, for example, must appear on ciga-rette packages. The FTC forbids the sale of tobacco and smokeless tobacco tothose under 18 because research shows that the majority of those who smokewhen young die prematurely of smoking-related diseases. Also, auto and high-way safety laws exist to reduce death and injury.

The Consumer Product Safety Act sets safety standards on many items. Whenproducts already sold are found to have a dangerous defect, businesses are legallyrequired to recall, repair, or stop selling the products. Dangerous toys, for example,

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have been removed from the market. And recalls have occurred with such productsas cars and sport utility vehicles. A federal Warranty Act requires sellers to specifywhat they will or will not do if their product is defective. Many product liabilitylaws also exist at the state level.

INFORMATIONBusinesses need information. This need has resulted in the heavy use of comput-ers to manage data. Vast amounts of information from many sources are col-lected, processed, stored, and distributed by computer, especially on the Internet.As a result, individuals and businesses need protection from the wrongful use ofprivate information.

Stores check credit card balances, banks check credit ratings, hospitals storepatients’ health records electronically, and the government collects income taxdata on all taxpayers. Incorrect information in any of these sensitive recordscould be very damaging to the individual. Also, only authorized people shouldhave access to such highly personal information. Unauthorized use of personalinformation can result in identity theft.

Therefore, businesses that use computer information extensively must handleit carefully to protect the rights of individuals and organizations. Carelessly handled information can lead to information liability—the responsibility forphysical or economic injury arising from incorrect data or wrongful use of data.

Information liability is similar to product liability. If a defective product injures someone, the injured party can sue the producer of the product. Simi-larly, if a person’s credit rating suffers because an employee keys a Social Security number into a credit record incorrectly, the business is liable for creating the problem. Also, a company not directly involved in collecting or recording incorrect information may be held liable for distributing it. Forinstance, if a store gives an incorrect credit balance to a bank that results in the refusal for a loan, the bank is as liable as the store that provided the incorrect information.

Occasionally, someone tampers with computerized data. The ElectronicCommunications Privacy Act and related laws make it a crime for any unau-thorized person to access a major computer system and view, use, or changedata. The laws deal with the interception and disclosure of electronic commu-nications, including e-mail privacy. Privacy laws help protect the public fromthe wrongful use or misuse of information.

A debate continues over the electronic collection of information over theInternet. Web sites can place small files called “cookies” on the computers ofsite visitors without their knowledge. Cookies are files of information aboutthe user that some Web sites create and store on the user’s own computer.These cookies can, among other things, track where users go on the Internet togather information on interests and preferences for marketing purposes. Somepeople feel that such data gathering is an invasion of privacy. The companiesargue that they are simply identifying what consumers want so they can betterserve them.

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CHECKPOINTDescribe three areas in which government protects consumers.

&factsfigures

In the 1990s, Disney’s licensingbusiness became a victim of itsown success. The strategy duringthe first half of the 1990s wasgeared to hit films like Beautyand the Beast, Aladdin, and TheLion King. Licensees reached apeak of over 4,000, far too manyto manage. Disney eventuallycut the number of licensees inhalf. By having broader relation-ships with fewer licensees, Dis-ney could build more effectivenew merchandise campaigns to strengthen established characters like Mickey Mouseand Winnie the Pooh.

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State and Local RegulationsThe federal government regulates interstate commerce, and individual statesregulate intrastate commerce. Interstate commerce is defined as business oper-ations and transactions that cross state lines, such as products that are pro-duced in one state and sold in other states. Intrastate commerce, on the otherhand, is defined as business transacted within a state. Most small service firmsare involved mainly in intrastate commerce, because they usually sell to cus-tomers located within the same state. Because most large companies are likelyto be involved in both interstate and intrastate commerce, they are subject tostate and federal regulations.

Moreover, each state has a constitution that allows it to create other govern-ing units, such as cities, towns, and counties. These units also regulate businesstransacted within them. Large businesses especially are subject to local, state,and federal laws.

Many state and local laws are related to federal laws. Most states, for instance, have laws that promote competition, protect consumers and theenvironment, safeguard the public’s health, and improve employment condi-tions. In addition, however, state and local governments regulate business by issuing licenses, franchises, and building codes, and by passing zoning regulations.

LICENSINGState and local governments have used licensing as a way to limit and controlthose who plan to enter certain types of businesses. To start a business that requires a license, the owner must file an application. If the government believesthere is a sufficient number of these kinds of businesses, the application can berefused.

Business is regulated not only by the granting of licenses but also by regularinspections by government officials to see that the company is operated accordingto the law. If it is not being properly operated, it can lose its license. For example,government agents inspect a licensed restaurant from time to time for cleanliness.If the restaurant fails inspection, the government may withdraw its license, andthe restaurant would have to close.

Licensing laws vary from place to place. In some cities, businesses of all typesmust obtain licenses, whereas in other communities only certain types need licenses. It is particularly common to license restaurants, beauty salons, healthand fitness centers, barbershops, and other types of service firms that may affectthe health of customers. In most states and in many cities, licensing laws regulatethe sale of such items as liquor and tobacco.

Businesses may also license the use of property. For example, a computersoftware company may give a business a license to use and copy a software pro-gram in return for a fee. Likewise, for a fee a business may license another firmto make a product using its patented device. Even firm names can be licensed.For example, Walt Disney Productions licenses its animal characters for use onclothing and other products.

PUBLIC FRANCHISINGAnother way for state and local governments to control business is through pub-lic franchises. A public franchise is a contract that permits a person or organiza-tion to use public property for private profit. No individual member of society,

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however, has a right to use public property for profit exceptthrough a special grant by society. Cities often grant publicfranchises to companies to operate bus lines, or to install elec-tric power or cable for television. For example, as presented inthe story that started this chapter, Deion has a franchise fromhis community to operate his taxi company.

BUILDING CODES AND ZONINGLocal governments regulate business through building codes,which control the physical features of structures. Building codesmay specify such things as the maximum height, minimum squarefeet of space, and the types of materials that can be used. Localgovernments also regulate the types of buildings and where theyare built. Zoning regulations specify which land areas may beused for homes and which areas may be used for different typesof businesses. A business must obey all local regulations relat-ing to zoning and construction.

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CHECKPOINTList three ways that local governments regulate business.


1. A _______ allows an inventor the sole right for 20 years to make, use,and sell an invention or a process.a. patentb. copyrightc. trademarkd. license

2. Business operations and transactions that cross state lines are calleda. interstate commerceb. intrastate commercec. multistate commerced. national commerce


3. Describe how the federal government protects consumers of goods and services.

4. Describe how local governments regulate businesses.

Assessment7. 2


How could the concept ofinformation liability affect

the way in which a businesshandles computer information?

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Focus On. . .

The Internet is a popular place to browse for general information andto buy products or services. But as the Internet grows in popularity,buyers have become concerned about the privacy of their personal information and its possible misuse. Are buyers’ fears justified?

DoubleClick, or DC, is a provider of advertising services to retailerswho sell their wares to Internet shoppers. DC has more than 1,500 busi-ness customers, including Ford. DC’s clients want to target their Internetadvertising to the people most likely to buy their products. DC can iden-tify, for example, which potential customers might buy Ford cars online.The main way to identify these buyers is through “cookies”—filesstored on customers’ computers. The cookies collect information onwhat customers buy and where they go on the Web, revealing theirpreferences and buying habits.

DC manages its clients’ advertising. From the customer informa-tion it collects online, it selects the customers that best match afirm’s target audience. DC uses this information to help its clients advertise effectively.

DC requires its business customers to collect information from cus-tomers when they make sales. DC itself claims not to collect personallyidentifiable information about people, such as names, addresses, andtelephone numbers. It does collect non–personally identifiable infor-mation, such as whether people have responded to an advertisementand the type of computer system they use. The nonpersonal informa-tion is used to measure advertisement effectiveness for DC’s businessclients. Internet customers have a choice of whether to forbid, restrict,or deny the use of information stored in cookies. Clear notice mustbe given customers so that they can make that decision.

DoubleClick merged with Abacus Direct, a company with data onthe catalog-buying habits of more than 80 million families, includingnames, addresses, and telephone numbers. This information permitsDC’s business clients to target these people with e-mail advertising.Some consumer groups have objected strongly, claiming that this is aninvasion of privacy that should be stopped. The Federal Trade Commis-sion initiated an investigation in 2000 but dropped the suit in 2001. Privacy questions are still an issue for online advertising.

Internet Ethics–Internet Advertising

1. Identify three people who have purchased an item on theInternet. Ask these people if they read the privacy policy before purchasing and if they know what a “cookie” is. Report your findings to the class.

2. Do the selling methods of Internet advertisers invade yourprivacy any more than do companies who mail you adver-tising or call you at home to try to sell you their products? Defend your answer.

3. A very young person is often not concerned about what infor-mation he or she provides to others on the Internet. Howcould an unethical business capture and use this informationin a way that could harm the family?

T h i n k C r i t i c a l l y

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7. 3 Business TaxesGoals• Discuss the nature of taxes and

the fairness of progressive, pro-portional, and regressive taxes.

• Identify and explain the mostcommon types of taxes that affect business.

Terms• proportional tax

(flat tax)• progressive tax• regressive tax• income tax• sales tax

• excise tax• property tax• real property tax• personal property

tax• assessed valuation

Unit 2

General Nature of TaxesAlthough government uses many different ways to regulate business, no way ismore important than taxes. The types and amounts of taxes influence businessdecisions that, in turn, can influence the total amount of business activity in aregion and in the nation.

Both businesses and individuals pay many kinds of taxes to local, state, andfederal governments. Taxes collected by the federal government account for about56 percent of all taxes collected, while various state and local taxes account forthe remaining 44 percent. Most corporations pay nearly one-half of their profitsin various kinds of taxes.

Government levies taxes for different reasons. When government decides tolevy a particular type of tax, it must consider fairness to taxpayers.

REASONS FOR TAXESGovernments levy taxes mainly to raise revenue (money) to fund new andongoing programs. Governments also use taxes to regulate business activity.

Governments set revenue goals that must be reached in order to pro-vide the various services desired by the public. Examples of these servicesrange from law enforcement and road building to providing for the mili-tary defense of the country. It is costly for government to provide themany services the public wants. To pay for these services, therefore, itmust collect taxes.

Governments also use taxes to control business activity. They canspeed up economic growth by lowering taxes and slow it by raising taxes.The federal government also taxes certain foreign goods that enter thiscountry in order to encourage consumers to purchase American-maderather than foreign-made products. State and local governments also con-trol business activity through taxation. For example, they often set hightaxes on alcoholic beverages and tobacco, in part to discourage customersfrom purchasing these products.

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For what purposes do governments use taxes?

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FAIRNESS OF TAXATIONIt is difficult for government to find ways to levy taxes fairly and still raise suffi-cient amounts of money to meet government expenses. The question of fairnesshas caused many debates. One problem is determining who will, in fact, pay the tax. For example, a firm may have to pay taxes on the goods it manufactures.But, because the tax is part of the cost of producing the product, this cost may bepassed on to the customer. Another problem of fairness is whether those with themost assets or most income should pay at a higher rate than those who own orearn the least. Government tries to solve the fairness problem by adopting a pro-portional, progressive, or regressive tax policy.

PROPORTIONAL TAXATION A proportional tax—sometimes called a flat tax—is onein which the tax rate remains the same regardless of the amount on which the taxis imposed. For example, in a given area the tax rate on real estate per $1,000 ofproperty value is always the same, regardless of the amount of real estate the tax-payer owns. The total dollar amount of the tax paid by someone with a $400,000home will differ from that paid by the person with a $175,000 home in the samearea, but the rate of the tax is the same for both owners. A flat state tax of 6 per-cent on income is also proportional. Those with higher incomes pay more dollarsthan those with lower incomes. But the tax rate of 6 percent stays the same.

PROGRESSIVE TAXATION A progressive tax is a tax based on the ability to pay. The pol-icy of progressive taxation is a part of many state and federal income tax systems.As income increases, the tax rate increases. As a result, a lower-income person istaxed at a lower rate than a higher-income person is. In fact, the Tax Foundationfound that in a recent year, 5 percent of the taxpayers who pay the most taxes con-tributed over half of all the federal individual income taxes collected.

Some local and state governments have combined the policies of proportionaland progressive taxes. For example, a state may apply a flat tax of 5 percent toincomes up to $20,000 and 6 percent to all incomes over $20,000.

The current federal tax law is a combination of progressive and proportionaltaxation policy. A 10 percent tax applies to taxable income up to $14,300 and a 15 percent tax applies to taxable income up to $58,100 for married couplesfiling joint returns. On taxable income from $58,100 and up to $117,250, therate jumps to 25 percent and to 28 percent for incomes between $117,251 and$178,650. With still higher incomes, the rate jumps within brackets to 33 per-cent and 35 percent, respectively. For single taxpayers, the rate is 10 percent up to $7,150. On taxable income from $7,150 to $29,050, the tax rate is 15 percent. Tax rates continue to rise within brackets to 25 percent, 28 percent, 33 percent, and then 35 percent, respectively, for people with higher taxable incomes. Because people with higher incomes pay at a higher rate than thosewith lower incomes, most people consider the tax fair.

REGRESSIVE TAXATION The third type of tax policy is a regressive tax. With thistype of tax, the actual tax rate decreases as the taxable amount increases. Although general sales taxes are often thought to be proportional, they are actually regressive, because people with lower incomes pay a larger propor-tion of their incomes in taxes than those with higher incomes. Suppose, forexample, that Person A and Person B live in a state with a 6 percent generalsales tax. As shown in Figure 7-4, Person A, with an annual take-home pay of$15,000, pays a 6 percent tax rate, whereas Person B, with an annual take-home pay of $45,000 pays only a 5.7 percent tax rate. Because the sales tax

Is it okay not to pay yourtaxes? Legally you can avoidpaying taxes by maximizingtax deductions. You cannotevade taxes by not reportingincome. This is both unethicaland illegal.

Ethics tip

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applies to purchases rather than to income, the general sales tax is regressive.For a less regressive sales tax, some states exclude taxes on such purchases asfood and clothing. These exclusions are usually items on which low-incomefamilies spend a high percentage of their income.

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Take-Home Pay

State Sales Tax

Take-Home Pay Not Spent

Take-Home Pay Spent

Tax Calculation

Tax

Tax Rate Calculation

Effective Tax Rate

$100,000

6%

$20,000

$80,000

($80,000 x .06)

$4,800

($12,400/$60,000)

5%

PERSON B

$30,000

6%

0

$30,000

($30,000 x .06)

$1,800

($1,800/$30,000 )

6%

PERSON A

FIGURE 7-4 People with very high incomes often prefer regressive taxes.

CHECKPOINTExplain the three types of tax policies.

Types of TaxesTaxation has become so complicated that the average businessperson spends agreat deal of time filling out tax forms, computing taxes, and filing reports. Inmany businesses, various taxes reduce income by a large percentage. The threemost common taxes affecting businesses and individuals are income taxes, sales

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Assessments

Corporation taxes

Federal excise tax

Federal social security tax

Federal income tax

Franchise tax

Gasoline tax

Licenses

Local income tax

Motor truck licenses and taxes

Payroll taxes

Property tax — intangible property

Property tax — merchandise

Property tax — personal

Property tax — real estate

Sales tax

Severance tax

State income tax

State unemployment tax

State workers’ insurance tax

FIGURE 7-5 The Most Common Business Taxes

taxes, and property taxes. Figure 7-5 gives examples of the types of taxes that abusiness operating in only one state may be required to pay.

INCOME TAXThe federal government and most state governments use the income tax to raiserevenues. An income tax is a tax on the profits of businesses and the earnings of individuals. For individuals, the tax is based on salaries and other incomeearned after certain deductions. For businesses, an income tax usually applies to net profits (receipts less expenses).

The income tax is the largest source of revenue for the federal government.Individuals pay about 70 percent of the total federal income taxes collected, andbusinesses pay nearly all of the remaining 30 percent. Businesses share the cost ofcollecting individual income taxes. Every business is required to withhold incometaxes from employees’ earnings and turn them over to the government. Thus,business performs an important tax service for government. Individuals and busi-nesses pay lower rates in the United States than in most other developed nations,as shown in Figure 7-6.

SALES TAXA sales tax is a tax levied on the retail price of goods and services at the timethey are sold. A general sales tax usually applies to all goods or services soldby retailers. However, when a sales tax applies only to selected goods or ser-vices, such as cigarettes and gasoline, it is called an excise tax.

Sales taxes are the main source of revenue for most states and some citiesand counties. Although state governments do not all administer sales taxes inthe same way, in most cases the retail business collects the tax from customersand turns this tax over to the state government. A business must be familiarwith the sales tax law of the state in which it operates so that it can collectand report the tax properly.

From time to time, federal officials have considered charging a national salestax. State officials, however, strongly oppose a national sales tax because the statetax is their primary source of revenue. The question as to how and whether to taxInternet sales is also under debate between the states and the federal government.

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Both see this source of taxes as highly attractive. Traditional retailers who paysales taxes, however, believe it is unfair for Internet sales not to be taxed.

PROPERTY TAXA property tax is a tax on material goods owned. Whereas the sales tax is theprimary source of revenue for most state governments, the property tax is themain source of revenue for most local governments. There may be a real prop-erty tax and a personal property tax. A real property tax is a tax on real estate,which is land and buildings. A personal property tax is a tax on possessionsthat are movable, such as furniture, machinery, and equipment. Essentially, personal property is anything that is not real estate. In some states, there is a special property tax on raw materials used to make goods and on finishedgoods available for sale.

A tax on property—whether it is real property or personal property—is statedin terms of dollars per hundred of assessed valuation.

Assessed valuation is the value of property determined by tax officials. Thus, atax rate of $2.80 per $100 on property with an assessed valuation of $180,000 is$5,040 ($180,000/100 = $1,800; $1,800 � $2.80 = $5,040).

Germany

Sweden

France

Spain

Norway

Greece

Canada

United States

United Kingdom

Japan

Major Taxes for Selected Countries (in Percent)

50.7%

48.6

48.3

37.9

37

36

30.2

30

29.7

24.2

FIGURE 7-6 U.S. tax rates are relatively low in comparison to thoseof other nations.

Source: Organization for Economic Cooperation and Development(www.oecd.org), 2001.

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EFFECT OF TAXES ON BUSINESS DECISIONSBusinesses consider taxes in many of their major deci-sions. Taxes may influence the accounting method abusiness selects to calculate profits and the methodused to pay managers. Often, taxes are used as abasis for deciding where to locate a new business orwhether to move a business from one location toanother.

For example, assume that a producer of gardentools is trying to decide in which of two cities tobuild a new factory. City A is located in a state thathas a low state income tax and low property taxes.City B is located in a state with no state income taxbut high property taxes. After weighing all the fac-tors, the producer decides to locate in City A. CityA, which has both an income tax and a propertytax, has been selected mainly because the total taxcost each year is less than in City B.

CHECKPOINTDescribe the three most common taxes levied on businessesand individuals.


1. A tax based on a person’s ability to pay is called aa. proportional taxb. flat taxc. progressive taxd. regressive tax

2. The largest source of revenue for the federal government isa. sales taxesb. income taxesc. import taxesd. property taxes


3. Describe the two ways governments use taxes.

4. Explain how taxes affect business decisions.

Assessment7. 3

The U.S. government’s Internal Revenue Service(IRS) is charged with collecting taxes owed to the federal government. The IRS maintains aWeb site to help ensure that individuals under-stand how to comply with complex tax rules.Point your browser to www.thomsonedu.com/school/bpmxtra. Click on the “site map” link.Identify the different information areas thatthe site supports. Choose an information area of interest to you. Explain how this site helps individuals and companies comply with tax regulations.

www.thomsonedu.com/school/bpmxtra


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CHAPTER CONCEPTS• Federal, state, and local governments regulate business activities

to protect citizens and businesses. The Federal Trade Commissionadministers federal laws that regulate commerce. Landmark lawssuch as the Sherman and Clayton Acts helped set the stage fordefining fair competition. Other federal agencies regulate basic industries such as aviation, communications, and food and drugs.

• A downside of free enterprise is that some firms go bankrupt, but bank-ruptcy laws allow businesses to recover or to exit business operationsfairly. The federal government protects individuals and firms from thetheft or misuse of their inventions, publications, and other intellectualproperty by granting the owners patents, trademarks, or copyrights.Local and state governments also regulate business through licenses,zoning laws, and franchising regulations.

• Governments obtain revenues through taxes to pay for public services, such as police, schools, and other human services. Themost common sources of revenue are income, sales, and propertytaxes.

• A progressive tax such as an income tax is based on one’s ability topay, and is higher for those who earn more than for those who earnless. A proportional tax such as a county’s real estate tax stays thesame regardless of a property’s current value. A regressive tax, suchas a sales tax, requires people who earn less to pay a greater portionof their income than do people who earn more. Arguments can bemade for each of the three types of taxes.

REVIEW TERMS AND CONCEPTSWrite the letter of the term that matches each definition. Some terms willnot be used.

1. Setting different prices for different customers2. Advertising that is misleading in some important way3. Legal process that allows the selling of assets to pay off debts4. Distinguishing name, symbol, or special mark placed on a good or

service that is legally reserved for the sole use of the owner5. Responsibility for physical or economic injury arising from incorrect

data or wrongful use of data6. Regulating which land areas may be used for homes and which may

be used for different types of businesses7. Tax rate that remains the same regardless of the income8. Tax that applies only to selected goods or services, such as cigarettes

and gasoline9. Business transacted within a state

10. Tax levied on retail price of goods and services when they are sold11. Tax on movable possessions12. Value of property determined by tax officials

C H A P T E R 7 A S S E S S M E N T

a. assessed valuationb. bankruptcyc. excise taxd. false advertisinge. information liabilityf. interstate commerceg. intrastate commerceh. personal property taxi. price discriminationj. proportional tax

(flat tax)k. public franchisel. sales tax

m. trademarkn. zoning


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DETERMINE THE BEST ANSWER13. A type of tax in which the actual tax rate decreases as the taxable

amount increases is thea. proportional taxb. regressive taxc. progressive taxd. sales tax

14. An agreement in which the federal government gives an author thesole right to reproduce, publish, and sell literary or artistic work iscalled aa. patentb. copyrightc. trademarkd. license

15. A contract that permits a person or organization to use publicproperty for private profit is calleda. public franchiseb. public licensec. public patentd. none of the above

16. Which of the following are true for computer cookies?a. They are stored on the user’s own computer.b. They can track where users go on the Internet.c. They can gather information on user interests and preferences

for marketing purposes.d. All of the above are true.

17. A tax on real estate is calleda. excise taxb. home taxc. property taxd. real property tax

18. State and local governments limit and control those who plan toenter certain types of businesses by issuinga. patentsb. copyrightsc. trademarksd. licenses

19. Which of the following are controlled by building codes?a. physical featuresb. maximum heightc. types of materials that can be usedd. all of the above

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APPLY WHAT YOU KNOW20. Discuss how a business that has a monopoly on a good or service

can keep its prices unreasonably high.

21. Explain why it is necessary for the federal government to pass lawspromoting fair competition.

22. Explain why state and local governments would want to regulatebusinesses.

23. Explain how it is possible for a business to continue operating evenafter it has filed for bankruptcy.

24. Explain how a computer software program might be both copy-righted and licensed.

MAKE CONNECTIONS25. Research Use the library or the Internet to research the history of the

Sherman Antitrust Act. Identify the unethical business practices thatled to the passage of this law. Identify the most recent use of this act.Specify how the U.S. economy is stronger because of the ShermanAntitrust Act.

26. Math You live in a state that has the following tax schedule:

Taxable Income Rate$0–$6,999 no tax7,000–14,999 5%15,000–24,999 6%25,000 and over 7%

Your state allows everyone $2,000 of exemptions from total income to arrive at taxable income. Your total income this year is only $12,000 because of work lost due to illness. Your friend’stotal income is $19,000.a. What is your tax this year? What is your friend’s tax?b. What is the actual tax rate you and your friend paid this year

based on your total incomes?

27. Writing You work for one of three manufacturers that sells nationally.You have heard that your company has discussed prices of a productthat all three manufacturers sell but that has become unprofitable toeach. These companies believe that it is foolish to sell at a loss. Theyall agree to raise prices, but they do not agree on how much each willcharge. Write a memo outlining your feelings about this action. Referto specific federal regulations as necessary.

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CASE IN POINTCASE 7-1: Pricing CompetitionHitesh Nazami owns and operates a hardware store in a community of50,000 people. The nearest town is at least 25 miles away, but there aretwo competitors in the area, one of which is a new “big box” homestore. All usually run weekly advertisements. Hitesh has noticed thatthe big-box store is selling many brand-name products at prices lowerthan he can buy them for from his suppliers. This has hurt Hitesh’soverall sales.

Recently a customer Hitesh had never seen before came into the storeto replace a broken tool. “I certainly hope you carry Weaver tools,” thecustomer said. “The other stores in town, including that new big-boxstore, don’t carry the Weaver brand.”

“Sure, we carry Weaver,” answered Hitesh. “It’s one of my best lines.”The customer looked happy and relieved, and went to his truck to

get the old tool he wanted to replace. While the customer was outside,Hitesh had a chance to think about what the customer had said. NowHitesh knew why the Weaver brand was so popular in his store. Hewas happy that the big-box store didn’t carry the Weaver brand. As aresult, he decided to raise prices on Weaver tools by the next morning.Also, he could promote the fact that he was the only local supplier ofWeaver tools in next week’s advertisements. A smile crossed Hitesh’sface as the customer returned.

“Here’s the tool,” said the customer. “I hope you can replace it. As youcan see, it’s quite different from the other brands.”

“I can see that it’s different,” Hitesh responded. “You’re lucky to getit at this low price. The price will be going up in the very near future.”

T H I N K C R I T I C A L L Y1. Is the big-box store practicing illegal price competition? Explain your

answer. If it is, what federal act is it violating?2. If the big-box store is not practicing illegal price competition, how

can it sell at such low prices?3. Does Hitesh have a monopoly on Weaver tools in his community?4. If Hitesh raises his prices by very much, what might happen? What

could the big-box store do?5. Is raising the price suddenly (and for the reason given) an unfair

business practice? Discuss your answer.6. Could Hitesh advertise that he has an exclusive contract with Weaver

even though he doesn’t?

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project:

P A Y I N G T A X E S A N D M E E T I N G R E G U L A T I O N SRegulations and taxes harm businesspeople most often when they are notaware of them or do not understand them. In this chapter, you will studythe effects of local, state, and federal laws on your business.

D A T A C O L L E C T I O N1. Identify the city/county office you will need to contact about local

zoning regulations, licenses and permits, and taxes and fees.2. Identify an information source (city booklet or Web site) on the legal

procedures necessary to start a new business in your city or state.

A N A L Y S I S1. Analyze the information you collected in the Data Collection sec-

tion above. Outline the legal procedures you would have to followand identify the permits and licenses you would need to start yourjuice bar. List the problems you might have in adhering to the legalrequirements.

2. The legislature in your state has just increased the sales tax from4 percent to 6 percent of total sales. This will cause you problemsbecause of the way you have priced your products. In order tomake prices easier to remember and to simplify making change,you priced your products as shown below to include the 4 percenttax. (Do not be concerned if these are not the same products orprices you have previously identified for your juice bar.)

Large one-variety juice/yogurt mix $3.75Small 3-juice combo 2.50Vitamin/mineral supplement .60Turkey sandwich 5.25Bagel with cream cheese 1.25Nutrition bar 1.90

It will be difficult to collect the additional 2 percent for salestax and keep your pricing method. How will the sales tax increaseaffect your business? Evaluate several methods for dealing with thetax increase. Define your new pricing structure.

3. To reduce your start-up costs and to find a business location witha large number of potential customers, you have decided to renta mobile cart in a large local mall in which to start your juice bar.Many fast-food business owners in your city are concerned that ifmobile carts are allowed to operate, they will take business awayfrom the other restaurants. They have approached the city councilto pass a zoning regulation to prevent food from being sold frommobile carts, suggesting that it might be a health hazard. What actions can you and the owners of other similar businesses take toprevent the zoning law from being adopted by the city council? Ifthe law is passed, how will it affect your business?

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Tax accountants work with businesses andindividuals to reduce their taxes by devel-oping strategies that maximize deductions

and minimize taxable revenue. They also helpdevelop investment strategies. Tax accountantsmust understand federal and state tax laws.Some work for federal and state tax agencies.

Employment OutlookIn 2004, there were about 1.2 million jobs for U.S. accountants and auditors. These areexpected to increase significantly throughthe year 2014. This job expansion is linkedto economic growth, changing financial lawsand regulations, increased scrutiny of com-pany finances due to accounting scandals,and congressional legislation designed tocurb corporate accounting fraud.

Job TitlesAccounting TraineeJunior Tax AccountantTax AccountantTax Accounting ManagerChief Tax Accountant

Needed Skills• Must possess a bachelor’s degree in account-

ing from an accredited college or university.• Should have an aptitude for mathematics

and be able to analyze, compare, and inter-pret facts and figures quickly.

• Public accountants must pass the CertifiedPublic Accounting (CPA) exam. Some employ-ers may require a master’s degree and a CPAlicense.

Working in an Accounting FirmRyan completed his bachelor’s degree in ac-counting. As a student, he worked as a volun-teer helping people fill out personal tax forms.After graduating, he started working for amedium-size accounting firm as a trainee. Afterpassing the CPA exam, he worked for threeyears as a junior tax accountant. He was thenpromoted to tax accounting, supervising a teamof accountants helping businesses develop taxstrategies. Ryan hopes to become a tax account-ing manager, then a chief tax accountant, andultimately a partner in the firm.

Career AssessmentWhy are tax accountants important to busi-nesses and individuals? Why do they needyears of training? What do you like and dislikeabout this career area?

Career ClusterTax Accountant

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Case StudyENDANGERED CAREERS FOR AMERICAN ENTREPRENEURSAmerica’s job outlook may be healthy, with many industries planning ongrowth in the coming years. But there are indicators that some occupa-tions are becoming obsolete. Occupations facing decline include farmersand ranchers, stock clerks and order fillers, sewing machine operators,computer operators, secretaries, telemarketers, meter readers, parts sales-people, and telephone operators. These career fields are endangered as aresult of technological advances and corporate changes. Nearly 155,000jobs for farmers and ranchers are endangered due to consolidation offarms into fewer and larger corporate operations that are replacing smallindependent farms. The growing use of computers for inventory controland the installation of new, automated equipment are expected to replacethe jobs of 115,000 stock clerks and order fillers. The growing volume of imports, greater use of offshore assembly, and increased productivitythrough new automation will contribute to the loss of 93,000 sewingmachine operator jobs. Private delivery companies and electronic commu-nications may replace 59,000 positions for mail clerks and mail-machineoperators. Nearly 49,000 computer operator jobs are being replaced withthe latest technology. Telemarketing jobs are losing steam due to the num-ber of people choosing not to receive telemarketing calls and the greateruse of blocking technology. Meter reader positions are being replacedwith the latest technology. Electronic commerce ordering and reorder-ing systems will automate the work of nearly 16,000 parts salespersons.Voice recognition systems will lead to a decline in the need for telephoneoperators.

Some of the hottest growth areas include elder care and pharmaceu-ticals for an aging baby boomer population. Entertainment products,the latest technological devices, and household appliances are also inhigh demand.

T H I N K C R I T I C A L L Y1. Why should potential entrepreneurs pay attention to national trends

for different occupational areas?2. Why should the buying habits of baby boomers be considered when

determining entrepreneurial ventures to pursue?3. What entrepreneurship opportunities may be available to small

farmers and ranchers?4. How has international trade affected entrepreneurship opportunities

in the United States?

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PresentationManagementIndividual EventYou have been hired by the Small Business Administration to prepare aneffective multimedia presentation that explains the four forms of businessownership: sole proprietorship, partnership, corporation, and franchise.The multimedia presentation should include details about starting eachtype of business, pros and cons for each form of business, investmentrequirements, liability for the owner(s), distribution of profits/losses,and examples of businesses in each category.

You will design a computer-generated multimedia presentation aboutdifferent forms of business ownership. No VCR or laser disc may be used.The presentation content must be on the contestant’s computer hard driveor on CD-ROM. Graphics, including charts, must be included in the pre-sentation. National Business Professionals of America grants permissionfor the use of the logo and/or organization’s name in the multimedia pre-sentation. Students are responsible for securing a release form from anyindividual whose name, photograph, and/or other information is includedin the presentation. No photographs, text, registered trademarks, or namesmay be used without permission. It is the policy of Business Professionalsof America to comply with state and federal copyright laws. Although awork may be freely accessible on the Internet and contain no statement ofcopyright, copyright law provides that such works are protected. Projectswill be disqualified for copyright violation and for not citing a sourceand/or receiving permission to use the material.

PERFORMANCE INDICATORS EVALUATED• Demonstrate knowledge of multimedia software and components.

• Demonstrate effective oral communication skills.

• Apply technical skills to create a multimedia presentation that enhancesthe oral presentation.

For more detailed information about performance indicators, go to theBPA Web site.

T H I N K C R I T I C A L L Y1. Why are more businesses counting on multimedia presentations for

sales and other promotional purposes?2. Why would a multimedia presentation about forms of business

ownership be useful for the Small Business Administration?3. Why should the multimedia presentation be easy for many individuals

to use?

http: / /www.bpa.org/

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