Deck 24: Multistate Corporate Taxation

Question 1

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

Answer 1

False

Question 2

State and local politicians tend to apply new and increased taxes to taxpayers who are visitors to the jurisdiction, such as a tax on auto rentals, because the taxpayer cannot vote to reelect the lawmaker.

Answer 2

True

Question 3

All of the U.S.states use an apportionment formula based on the sales, property, and payroll factors.

Answer 3

False

Question 4

Typically, corporate income taxes constitute about 20 percent of a state's tax collections.

Question 5

Most states begin the computation of taxable income with an amount from the Federal income tax return.

Question 6

Most of the U.S.states have adopted an alternative minimum tax, similar to the Federal system.

Question 7

Nonbusiness income receives tax-exempt treatment under all state corporate income taxes.

Question 8

Under P.L.86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Question 9

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

Question 10

Roughly five percent of all taxes paid by businesses in the U.S.are to state, local, and municipal jurisdictions.

Question 11

A state or local tax on a corporation's income might be called a franchise tax or a business privilege tax.

Question 12

A typical state taxable income addition modification is for the Federal income tax paid for the period.

Question 13

All of the U.S.states have adopted a tax based on net taxable income.

Question 14

Politicians frequently use tax credits and exemptions to create economic development incentives.

Question 15

Double weighting the sales factor effectively increases the tax burden on taxpayers based in the state, such as corporations with in-state headquarters.

Question 16

Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.

Question 17

Typical indicators of nexus include the presence of employees based in the state, and the ownership or lease of realty there.

Question 18

A state can levy an income tax on a business only if the business was incorporated in the state.

Question 19

In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

Question 20

A typical state taxable income addition modification is the interest income from U.S.Treasury bonds.

Question 21

The property factor includes business assets that the taxpayer owns, but also those merely used under a lease agreement.

Question 22

Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.

Question 23

S corporations flow-through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

Question 24

An assembly worker earns a $30,000 salary and receives a fringe benefit package worth $15,000.The payroll factor assigns $30,000 for this employee.

Question 25

The use tax is designed to complement the sales tax.A use tax typically covers purchases made out of state and brought into the jurisdiction.

Question 26

A few states assess a state-level tax on an S corporation that operates in the state.

Question 27

By making a water's edge election, the multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S.and
E.U.affiliates.

Question 28

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

Question 29

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.

Question 30

Most states waive the collection of sales tax on medical equipment.

Question 31

Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's "garage sale."

Question 32

A unitary business applies a combined apportionment formula, including data from operations of all of the affiliates.

Question 33

Almost all of the states assess some form of consumer-level sales/use tax.

Question 34

Typically exempt from the sales/use tax base is the purchase of lumber by a do-it-yourself homeowner, when she builds a deck onto her patio.

Question 35

Typically included in the sales/use tax base is the purchase of computer and cell phone equipment by a large consulting firm that is incorporated in the state.

Question 36

Most states' consumer sales taxes apply directly to the final purchaser of the taxable asset, who then remits the tax to the state treasury.

Question 37

Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

Question 38

In most states, Federal S corporations must make a separate state-level election of the flow-through status.

Question 39

The property factor includes land and buildings used for business purposes.

Question 40

A service engineer spends 60% of her time maintaining the employer's productive business property and 40% maintaining the employer's nonbusiness rental properties.This year, her compensation totaled $90,000.The payroll factor assigns $54,000 to the state in which the employer is based.

Question 41

Helene Corporation owns manufacturing facilities in States A, B, and

A)$0.
B)$266,667.
C)$311,100.
C)A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor, based solely on sales.
Helene's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
Helene's apportionable income assigned to A is:
D)$1,000,000.

Question 42

Bulky Company sold an asset on the first day of the tax year for $500,000.Bulky's Federal tax basis for the asset was $300,000.Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $375,000.What adjustment, if any, should be made to Bulky's Federal taxable income in determining the correct taxable income for the typical state?

A)$75,000.
B)$25,000.
C)($75,000).
D)$0.

Question 43

José Corporation realized $600,000 taxable income from the sales of its products in States X and Z.José's activities in both states establish nexus for income tax purposes.José's sales, payroll, and property among the states include the following. X utilizes an equally weighted three-factor apportionment formula.How much of José's taxable income is apportioned to X?

A)$79,800.
B)$300,000.
C)$520,200.
D)$600,000.

Question 44

Perez Corporation is subject to tax only in State
A)$400,000.

A)Perez generated the following income and deductions. Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Perez's A taxable income is:
B)$450,000.
C)$600,000.
D)$650,000.

Question 45

Under P.L.86-272, which of the following transactions by itself would create nexus with a state?

A)Inspection by a sales employee of the customer's inventory for specific product lines.
B)Using an independent contractor who acts as a manufacturer's representative for the taxpayer through a sales office in the state.
C)Executing a sales campaign, using an advertising agency acting as an independent contractor for the taxpayer.
D)Maintenance of inventory in the state by an independent contractor under a consignment plan.

Question 46

Federal taxable income is used as the starting point in computing the state's income tax base, but numerous state adjustments or modifications generally are required to:

A)Reflect differences between state and Federal tax statutes.
B)Remove income that a state is constitutionally prohibited from taxing.
C)Allow for all of the states to use the same definition of taxable income.
D)a.and b.

Question 47

In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction from Federal income?

A)Interest on U.S.obligations.
B)Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes.
C)Federal corporate income taxes paid.
D)The amount by which the Federal depreciation deduction exceeds the corresponding state amount.

Question 48

José Corporation realized $600,000 taxable income from the sales of its products in States X and Z.José's activities in both states establish nexus for income tax purposes.José's sales, payroll, and property among the states include the following. Z utilizes a double-weighted sales factor in its three-factor apportionment formula.How much of José's taxable income is apportioned to Z?

A)$600,000.
B)$120,000.
C)$80,000.
D)$0.

Question 49

Which of the following is not immune from state income taxation, even if P.L.86-272 is in effect?

A)Sale of the rights associated with a patent used in the taxpayer's business.
B)Sale of office equipment that constitutes inventory to the purchaser.
C)Sale of office equipment to be used in the taxpayer's business.
D)All of the above are protected by P.L.86-272 immunity provisions.

Question 50

Flint Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Flint's Federal taxable income is $750,000, which includes a $50,000 deduction for state income taxes.During the year, Flint received $10,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. Flint's taxable income for X purposes is:

A)$810,000.
B)$800,000.
C)$790,000.
D)$750,000.

Question 51

In most states, medical services are exempt from the sales/use tax base.

Question 52

In determining state taxable income, all of the following are adjustments to Federal income except:

A)A Federal net operating loss.
B)Federal income tax expense.
C)Dividends received from other U.S.corporations.
D)Wages paid to officers and executives.

Question 53

The individual seller of a used auto should collect and remit sales tax to the state.

Question 54

Norman Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y.Due to a temporary decline in the corporation's sales, Norman has rented 20% of its Y facility to an unaffiliated corporation.Norman generated $1,000,000 net rental income and $2,000,000 income from manufacturing. Norman is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income.By applying the statutes of each state, Norman determined that its apportionment factors are .65 for X and .35 for Y.
Norman's income attributed to X is:

A)$0.
B)$1,000,000.
C)$1,300,000.
D)$2,000,000.
E)$3,000,000.

Question 55

Kurt Corporation realized $900,000 taxable income from the sales of its products in States X and Z.Kurt's activities establish nexus for income tax purposes in both states.Kurt's sales, payroll, and property among the states include the following. Z utilizes an equally weighted three-factor apportionment formula.Kurt is incorporated in X.How much of Kurt's taxable income is apportioned to Z?

A)$0.
B)$150,000.
C)$900,000.
D)$2,000,000.

Question 56

Mandy Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z.Mandy's activities establish nexus for income tax purposes only in Z.Mandy's sales, payroll, and property among the states include the following. X utilizes a sales-only factor in its three-factor apportionment formula.How much of Mandy's taxable income is apportioned to X?

A)$0.
B)$333,333.
C)$543,333.
D)$1,000,000.

Question 57

Simpkin Corporation owns manufacturing facilities in States A, B, and

A)$1,000,000.
B)$533,333.
C)$475,000.
C)A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor, based solely on sales.
Simpkin's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
Simpkin's apportionable income assigned to B is:
D)$0.

Question 58

The typical state sales/use tax falls on sales of both real and personal property.

Question 59

The typical local property tax falls on both an investor's real estate and her stock portfolio.

Question 60

Under P.L.86-272, which of the following transactions by itself would create nexus with a state?

A)Order solicitation for a plot of real estate, approved and filled from another state.
B)Order solicitation for a computer, approved and filled from another state.
C)Order solicitation for a machine, with credit approval from another state.
D)The conduct of a training seminar for sales personnel as to how to install and operate a new software product.

Question 61

Judy, a regional sales manager, has her office in State X.Her region includes several states, as indicated in the sales report below.Determine how much of Judy's $200,000 compensation is assigned to the payroll factor of State X.

A)$0.
B)$66,667.
C)$80,000.
D)$200,000.

Question 62

In most states, a limited liability company (LLC) is subject to the state income tax:

A)As a flow-through entity, similar to its Federal income tax treatment.
B)As though it were a unitary business.
C)As though it were a C corporation.
D)LLCs typically are exempted from state income taxation.

Question 63

Given the following transactions for the year, determine Comp Corporation's D payroll factor denominator.State D has adopted the principles of UDITPA.

A)$1,000,000.
B)$900,000.
C)$700,000.
D)$600,000.

Question 64

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to an agency of the U.S. government. State A applies a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in A.
B) $50,000 in A, with the balance exempted from other states' sales factors under the Colgate doctrine.
C) $100,000 in A.
D) In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.

Question 65

In the broadest application of the unitary theory, the U.S.unitary business files a combined tax return using factors and income amounts for all affiliates:

A)Organized in the U.S.
B)Organized in NAFTA countries.
C)Organized anywhere in the world.
D)As dictated by the tax treaties between the U.S.and the other countries.

Question 66

A use tax applies when a State A resident purchases:

A)A new automobile from a State A dealership.
B)A used automobile from the web site of a State A dealership.
C)A new automobile from a State B dealership, then using the car back at home.
D)Hardware from sears.com rather than at the Best Buy store at the local mall.

Question 67

Britta Corporation's entire operations are located in State A. Eighty percent ($800,000) of Britta's sales are made in A and the remaining sales ($200,000) are made in State B. B has not adopted a corporate income tax. If A has adopted a throwback rule, the numerator of Britta's A sales factor is:

A) $0.
B) $200,000.
C) $800,000.
D) $1,000,000.

Question 68

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S. government. General has not established nexus with B. State A does not apply a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

A) In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
B) $100,000 in A.
C) $100,000 in B.
D) $0 in both A and B.

Question 69

A state sales tax usually falls upon:

A)The sale of a used dinette set sold at a rummage sale.
B)The sale of a dinette set by the manufacturer to a furniture retailer.
C)The sale of a case of Bibles by the publisher to a church bookstore.
D)The sale of a Bible to a member of the church.
E)All of the above are exempt transactions.

Question 70

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a customer in B. This activity is not sufficient for General to create nexus with B. State A applies a throwback rule, but State B does not. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in both A and B.
B) $100,000 in A.
C) $100,000 in B.
D) In both A and B, according to the apportionment formulas of each.

Question 71

A state sales tax usually falls upon:

A)Sales of groceries.
B)Sales of widgets made to out-of-state customers.
C)Sales of widgets made to the ultimate consumer of the product or service.
D)Sales of real estate.

Question 72

A taxpayer wishing to reduce the negative tax effects of the application of the unitary theory might:

A)Affiliate with a service division that shows an operating loss, like one in research and development.
B)Acquire a unitary affiliate in a country with a high wage structure.
C)Add a profitable entity to the unitary group.
D)a.and b.

Question 73

Trayne Corporation's sales office and manufacturing plant are located in State X.Trayne also maintains a manufacturing plant and sales office in State W.For purposes of apportionment, X defines payroll as all compensation paid to employees, including elective contributions to § 401(k) deferred compensation plans.Under the statutes of W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor.Trayne incurred the following personnel costs. Trayne's payroll factor for State X is:

A)100.00%.
B)66.67%.
C)62.50%.
D)50.00%.

Question 74

Boot Corporation is subject to income tax in States A and

A)($50,000).
B)$50,000.
B)Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?
C)$16,100.
D)($16,100).

Question 75

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a customer in B. This activity is not sufficient for General to create nexus with B. State B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in both A and B.
B) $100,000 in A.
C) $100,000 in B.
D) In both A and B, according to the apportionment formulas of each.

Question 76

The throwback rule requires that:

A)Sales of tangible personal property are attributed to the state where they originated, if the taxpayer is not taxable in the state of destination.
B)Sales of tangible personal property are attributed to the seller's state, even if the taxpayer is not taxable in the state of destination.
C)Sales of services are attributed to the state of commercial domicile.
D)Capital gain/loss is attributed to the state of commercial domicile.

Question 77

Bert Corporation, a calendar-year taxpayer, owns property in States M and O.Both M and O require that the average value of assets be included in the property factor.M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. Bert's M property factor is:

A)75.0%.
B)66.7%.
C)64.9%.
D)64.5%.

Question 78

Net Corporation's sales office and manufacturing plant are located in State X.Net also maintains a manufacturing plant and sales office in State W.For purposes of apportionment, X defines payroll as all compensation paid to employees, including contributions to § 401(k) deferred compensation plans.Under the statutes of W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor.Net incurred the following personnel costs. Net's payroll factor for State W is:

A)50.00%.
B)37.50%.
C)33.33%.
D)0.00%.

Question 79

Valdez Corporation, a calendar-year taxpayer, owns property in States M and O.Both M and O require that the average value of assets be included in the property factor.M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. Valdez's O property factor is:

A)35.0%.
B)37.2%.
C)39.5%.
D)53.8%.

Question 80

Cruz Corporation owns manufacturing facilities in States A, B, and

A)$1,000,000.
B)$273,333.
C)$200,000.
C)A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor, based solely on sales.
Cruz's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
Cruz's apportionable income assigned to C is:
D)$0.