Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?

• A. The PCU's Governing Board Is Appointed by the Primary Government.
• B. The PCU Relies on the Primary Government for Debt Issuance.
• C. The Potential Component Unit Raises Its Own Taxes Without the Approval of the Primary Government.
• D. The PCU Receives Majority of Its Funding from the Primary Government.

Answer: (C)

The concept being tested is fiscal independence: a component unit is considered fiscally independent if it can generate and control its own resources without needing the primary government’s approval. The ability to raise its own taxes is a clear sign of this independence because it shows the unit can fund its operations and debt on its own, rather than relying on the primary government. The other scenarios reflect control or funding by the primary government—appointment power, debt issuance reliance, or receiving most funding from the primary government—which indicate dependence, not independence. Therefore, the unit raising its own taxes without approval demonstrates the needed fiscal independence.