Deck 12: State and Local Taxes

Question 1

Businesses engaged in interstate commerce are subject to income tax in every state in which they operate.

Answer 1

False

Question 2

State tax law is comprised solely of legislative authority.

Answer 2

False

Question 3

The Wayfair decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence.

Answer 3

False

Question 4

The Wayfair decision reversed the Quill decision, which had affirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

Question 5

The state tax base is computed by making adjustments to federal taxable income.

Question 6

All states employ some combination of sales and use tax, income or franchise tax, or property tax to fund their government operations.

Question 7

Nondomiciliary businesses are subject to tax everywhere they do business.

Question 8

Use tax liability accrues in the state where taxable purchased property will be used when the seller of the property is not required to collect sales tax.

Question 9

Business income is allocated to the state of commercial domicile.

Question 10

Economic presence always creates sales tax nexus.

Question 11

All 50 states impose a sales and use tax system.

Question 12

Businesses subject to income tax in more than one jurisdiction have the right to apportionment.

Question 13

Purchases of inventory for resale are typically exempt from sales and use taxes.

Question 14

Businesses must pay income tax in their state of commercial domicile.

Question 15

Wyoming imposes an income tax on corporations.

Question 16

Businesses must collect sales tax only in states where they have sales tax nexus.

Question 17

Failure by a seller to collect and remit sales taxes often results in a larger tax liability than failure to pay income taxes.

Question 18

The sales and use tax base varies from state to state.

Question 19

Commercial domicile is the location where a business is headquartered and from whence it directs its operations.

Question 20

Many states are either starting to or are in the process of expanding the types of services subject to sales tax.

Question 21

Business income includes all income earned in the ordinary course of business.

Question 22

Public Law 86-272 was a congressional response to Northwestern States Portland Cement.

Question 23

The throwback rule requires a company, for apportionment purposes, to include all sales of inventory sold into a state without income tax nexus rather than from the state from where the inventory was shipped.

Question 24

Several states are now moving from a strict physical presence test toward an economic presence test for income taxes.

Question 25

The Mobil decision identified three factors to determine whether a group of companies are unitary.

Question 26

A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.

Question 27

Most state tax laws adopt the federal tax law as of a specific date in time.

Question 28

Sales personnel investigating a potential customer's creditworthiness generally are deemed to exceed protected boundaries of solicitation.

Question 29

Immaterial violations of the solicitation rules automatically create income tax nexus.

Question 30

A state's apportionment formula divides nonbusiness income among the states where income tax nexus exists.

Question 31

Federal/state adjustments correct for differences between two states' tax laws.

Question 32

Public Law 86-272 protects certain business activities from creating income tax nexus.

Question 33

The Wrigley case held that the sale of intangibles is protected by Public Law 86-272.

Question 34

In Complete Auto Transit the U.S. Supreme Court determined eight criteria for determining whether a state can tax a nondomiciliary company.

Question 35

Giving samples and promotional materials without charge is a protected solicitation activity.

Question 36

The trade show rule allows businesses to maintain a sample room for up to four weeks per year.

Question 37

Public Law 86-272 protects only companies selling tangible personal property.

Question 38

A unitary-return group includes only companies included in the federal consolidated tax return filing.

Question 39

Delivery of tangible personal property through common carrier is a protected activity.

Question 40

Separate-return states require each member of a consolidated group with income tax nexus to file their own state income tax return.

Question 41

Which of the following regarding the state tax base is incorrect?

A) It is computed by making adjustments to federal taxable income.
B) It is divided into business and nonbusiness income.
C) It is a necessary step in the state income tax process.
D) It applies only to interstate businesses.

Question 42

All of the following are false regarding apportionment except?

A) Applies to only business income.
B) Applies to only nonbusiness income.
C) Applies to both business and nonbusiness income.
D) Investment income is subject to apportionment.

Question 43

Which of the following law types is not a primary authority source?

A) Legislative
B) Administrative
C) Judicial
D) Treatises

Question 44

Which of the following statements regarding income tax commercial domicile is incorrect?

A) The location where a business is headquartered.
B) The location where a business is incorporated.
C) The location from which a business directs its operations.
D) None of the choices are correct.

Question 45

In recent years, states are weighting the sales factor because it is easier to calculate.

Question 46

Rental income is allocated to the state of commercial domicile.

Question 47

Which of the following sales is likely subject to sales and use tax in a state that assesses a sales and use tax?

A) Tax preparation services
B) Automobiles
C) Inventory
D) Food

Question 48

Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Michigan, Minnesota, and Wisconsin. It has sales personnel only in the states discussed and all these states have adopted Wayfair legislation. Determine the state in which Mighty Manny does not have sales and nexus given the following scenarios:

A) Mighty Manny is incorporated and headquartered in Michigan. It also has property, employees, sales personnel, and intangibles in Michigan.
B) Mighty Manny has a warehouse in Illinois.
C) Mighty Manny has independent sales representatives in Minnesota that make $150,000 of sales on 100 transactions. The representatives distribute ice scraper-related items for over a dozen companies.
D) Mighty Manny has two customers in Wisconsin. Mighty Manny receives $50,000 on 20 orders over the phone and ships goods to its customers using FedEx.

Question 49

Which of the following businesses is likely to have taxable sales for purposes of sales and use tax?

A) Campus bookstore selling textbooks and university apparel.
B) An online retailer of textbooks with less than $100,000 in sales on 150 transactions.
C) A local accounting firm.
D) Mail-order clothing company.

Question 50

A gross receipts tax is subject to Public Law 86-272.

Question 51

The payroll factor includes payments to independent contractors.

Question 52

Most services are sourced to the state where the services were performed.

Question 53

Which of the following is incorrect regarding nondomiciliary businesses?

A) Subject to tax only where income tax nexus exists.
B) A business cannot be nondomiciliary where it is headquartered.
C) A business can be nondomiciliary in only one jurisdiction.
D) Subject to tax only where a sufficient connection exists.

Question 54

Interest and dividends are allocated to the state of commercial domicile.

Question 55

Which of the following is not a primary revenue source for most states?

A) Income or franchise taxes
B) Sales or use taxes
C) Severance taxes
D) Property taxes

Question 56

The property factor is generally calculated as being the average of the beginning and ending property values.

Question 57

The annual value of rented property is not included in the property factor.

Question 58

Which of the following activities will create sales tax nexus?

A) Advertising using television commercials.
B) Salespeople physically located in a state from which they only take orders.
C) Delivery of sales by UPS.
D) $90,000 of sales on 190 online sales transactions.

Question 59

Most states have shifted away from an equally weighted three-factor to a heavily weighted sales apportionment formula.

Question 60

Which of the items is correct regarding a use tax?

A) Use taxes are imposed by every state.
B) Use taxes only apply when the seller is not required to collect the sales tax.
C) Amazon collects use taxes on behalf of all its resellers.
D) States choose to implement either a sales tax or a use tax but not both.

Question 61

Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store, which ships to out-of-state customers. Assume sales transactions in all states, except New York, are under 200 and that all states have adopted Wayfair legislation. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (0 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?

A) $10,386
B) $14,543
C) $26,733
D) $61,289

Question 62

Bethesda Corporation is unprotected from income tax by Public Law 86-272. Which of the following characteristics likely creates a problem for Bethesda in states other than Maryland?

A) Bethesda does business in Maryland and five other states.
B) Bethesda sells copier equipment and copy center services.
C) All orders are approved in Maryland.
D) All in-state services are limited to solicitation in states other than Maryland.

Question 63

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $3,100 dress. Lisa returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence, where she will use the dress. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales tax collection obligation?

A) $0
B) $155 to Virginia
C) $155 sales tax to Virginia and $31 use tax to Maryland
D) $186 to Maryland

Question 64

On which of the following transactions should sales tax generally be collected?

A) Architecture plans delivered out of state through the mail.
B) Sales of woolen goods to a state without economic sales tax nexus delivered through common carrier.
C) Accounting services provided in Alaska.
D) Meal purchased at McDonald's.

Question 65

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress. Lisa returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence, where she will use the dress. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales tax collection obligation?

A) $0
B) $75 to Virginia
C) $75 sales tax to Virginia and $15 use tax to Maryland
D) $90 to Maryland

Question 66

Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Michigan, Minnesota, Wisconsin, and Wyoming. It has sales personnel only in the states discussed and all these states have adopted Wayfair legislation. Determine the state in which Mighty Manny does not have sales tax nexus given the following scenarios:

A) Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
B) Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's customers in other states, but the company has no Nebraska sales.
C) Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
D) Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on Mighty Manny's trucks.

Question 67

Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,900,000 and out-of-state sales are $218,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax collection obligation?

A) $0
B) $10,900
C) $95,000
D) $105,900

Question 68

Which of the following isn't a criterion used to determine whether a unitary relationship exists?

A) Functional integration
B) Centralized management
C) Economies of scale
D) Consolidated return status

Question 69

Mahre, Incorporated, a New York corporation, runs ski tours in several states. Mahre also has a New York retail store and an Internet store, which ships to out-of-state customers. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (6.75 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit in Maine?

A) $0
B) $3,053
C) $13,267
D) $16,319

Question 70

Which of the following isn't a requirement of Public Law 86-272?

A) The tax is based on net income.
B) The taxpayer sells only tangible personal property.
C) The taxpayer is an intrastate business.
D) The taxpayer is nondomiciliary.

Question 71

Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?

A) Any form of advertising.
B) Distribution of samples without charge.
C) Accepting a down payment.
D) Checking a customer's inventory.

Question 72

What was the Supreme Court's holding in Wayfair?

A) An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
B) Reversed the Quill decision that an out-of-state business must have physical presence in the state before the state may require the business to collect sales tax from in-state customers.
C) Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.
D) Defined solicitation for purposes of Public Law 86-272.

Question 73

In which of the following state cases did the state not assert economicincome tax nexus?

A) South Dakota with the Wayfair rule.
B) South Carolina in the Geoffrey case.
C) West Virginia in the MBNA case.
D) Wisconsin in Wrigley.

Question 74

Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store, which ships to out-of-state customers. Assume sales transactions in all states, except New York, are under 200 and that all states have adopted Wayfair legislation. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (0 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?

A) $10,400
B) $14,470
C) $26,749
D) $61,305

Question 75

Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,000,000 and out-of-state sales are $200,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax collection obligation?

A) $0
B) $10,000
C) $50,000
D) $60,000

Question 76

Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?

A) Protected activities are exempt.
B) A sufficient connection exists.
C) Only a fair portion of income can be taxed.
D) Tax cannot discriminate against nondomiciliary businesses.

Question 77

What was the Supreme Court's holding in National Bellas Hess?

A) An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
B) Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to collect sales tax from in-state customers.
C) Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.
D) Defined solicitation for purposes of Public Law 86-272.

Question 78

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $2,600 dress that is shipped to her Maryland residence using a common carrier. Roxy's total Maryland sales are $33,800 on 15 transactions. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax collection obligation?

A) $0
B) $130 to Virginia
C) $130 sales tax to Virginia and $52 use tax to Maryland
D) $182 to Maryland

Question 79

Public Law 86-272 protects a taxpayer from which of the following taxes?

A) Texas Margin Tax (a tax with net income, gross receipts, and capital worth components).
B) Washington Business & Occupation Tax (a gross receipts tax).
C) Ohio Commercial Activity Tax (an excise tax with a gross receipts base).
D) California Franchise Tax (a net income tax).

Question 80

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress that is shipped to her Maryland residence using a common carrier. Roxy's total Maryland sales are $20,000 on 15 transactions. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax collection obligation?

A) $0
B) $75 to Virginia
C) $75 sales tax to Virginia and $15 use tax to Maryland
D) $90 to Maryland