What is one potential effect of tax on a business?

The correct answer highlights how taxes can directly impact a business's bottom line. When a business is subject to taxation, the amount of money it must pay to the government reduces its available profits. This is because taxes are considered a business expense, and once they are accounted for, the remaining revenue represents the net profit. As a result, when tax rates increase or additional taxes are introduced, the overall profitability of the business can decline.

This relationship is fundamental in business finance, as it illustrates the need for businesses to manage their tax liabilities effectively to sustain healthy profit margins. Additionally, lower profits due to taxes can influence reinvestment strategies, funding for employee salaries, and overall growth potential.