Which choice best describes restricted taxes?

Restricted taxes refer to taxes that are designated for a specific purpose as outlined by legislation or policy. This means that the revenue generated from these taxes cannot be used at the discretion of the government but must be allocated toward certain pre-defined projects or programs. For instance, some states impose taxes for specific uses like education, transportation, or public health, thus ensuring that funds collected for one purpose are used strictly for that stated purpose.

In contrast, the other options describe different concepts. Taxes that can be freely allocated by the government would refer to unrestricted or general fund taxes. Taxes imposed on luxury items fall into the category of excise taxes and do not necessarily imply restriction on their use. Lastly, taxes exempt from all citizens would indicate a type of tax exemption rather than a description of restricted taxes. Thus, option B best captures the nature of restricted taxes, emphasizing their purpose-driven allocation.