Question 1

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

Accepted Answer

Businesses that operate in multiple jurisdictions have the right to apportionment, which allows them to divide their income based on a formula that takes into account factors such as sales, payroll, and property in each jurisdiction. This ensures that they are only taxed on the income related to each specific jurisdiction, rather than being double-taxed.

Question 2

Wyoming imposes an income tax on corporations.

Accepted Answer

Wyoming does not impose an income tax on corporations.

Question 3

All 50 states impose a sales and use tax system.

Accepted Answer

Not all 50 states impose a sales and use tax; for example, Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a statewide sales tax.

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.

Accepted Answer

The Wayfair decision did in fact reverse the Quill decision, allowing states to require the collection of sales taxes from out-of-state businesses without physical presence in the state.

Question 5

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

Accepted Answer

This statement is true. All states use one or more of these taxes to generate revenue for their government operations.

Question 6

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

Accepted Answer

When the seller of the property is not required to collect sales tax, the use tax liability accrues in the state where the purchased property will be used.

Question 7

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

Accepted Answer

In most states, purchases of inventory for resale are considered exempt from sales and use taxes. This is because sales taxes are intended to be applied once on the final sale to the end-consumer, rather than on the sale of goods as they move through the production and distribution process. However, it's important to note that the specific rules and exemptions for sales and use taxes can vary by state, so it's always a good idea to consult with a tax professional or refer to state-specific guidelines to ensure compliance.

Question 8

Economic presence always creates sales tax nexus.

Accepted Answer

Economic presence alone does not create sales tax nexus. Each state has its own specific rules regarding what triggers sales tax nexus, and economic activity is just one factor that may be considered. Other factors could include physical presence, click-through relationships, affiliate relationships, and more.

Question 9

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

The answer of Nondomiciliary businesses are subject to tax everywhere...

Question 10

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

Accepted Answer

This is the definition of commercial domicile.

Question 11

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

Accepted Answer

As of 2021, many states have either implemented or are considering expanding the types of services subject to sales tax to increase revenue. Some examples include Connecticut, Maine, Maryland, Massachusetts, and Nebraska.

Question 12

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

Accepted Answer

Most states use federal taxable income as a starting point and make adjustments to calculate the state tax base. These adjustments can include adding back certain deductions or income exclusions that are allowed on the federal level but not on the state level, or applying different tax rates or credits.

Question 13

State tax law is comprised solely of legislative authority.

Accepted Answer

State tax law is not solely comprised of legislative authority; it also involves regulations from state tax agencies, interpretations by courts, and sometimes voter-approved measures, making it a combination of legislative, executive, and judicial inputs.

Question 14

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

Accepted Answer

The Wayfair decision actually overturned previous rulings, stating that states can require out-of-state sellers to collect and remit sales tax even if they do not have a physical presence in the state.

Question 15

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

Accepted Answer

Sales tax nexus refers to a connection between a business and a state, which can be created by having a physical presence such as a store, office, or warehouse, or by meeting certain sales thresholds. Only if a business has sales tax nexus in a state, they have to collect sales tax from their customers in that state.

Question 16

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

Accepted Answer

Sales taxes are collected and owed on every sale made by a seller, while income taxes are only owed on the profits earned by the seller. Additionally, sales tax rates can be higher than income tax rates, causing the tax liability for non-collection or non-remittance to be higher.

Question 17

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

Accepted Answer

Businesses engaged in interstate commerce are subject to income tax only in the states where they have a physical presence, such as a office or store. This is based on the Supreme Court decision in Quill Corp. v. North Dakota (1992). However, some states have enacted laws that require out-of-state businesses to pay income tax if they meet certain sales or economic activity thresholds.

Question 18

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

Accepted Answer

Each state has its own rules and regulations for what is subject to sales and use tax, as well as the rates applied to those items. Therefore, the tax base can vary significantly from state to state.

Question 19

Business income is allocated to the state of commercial domicile.

Accepted Answer

The answer of Business income is allocated to the state...

Question 20

The primary purpose of state and local taxes is to raise revenue to finance state and local government.

Accepted Answer

State and local taxes are collected by state and local governments to finance their operations and services, such as public schools, parks, police and fire protection, infrastructure, and social welfare programs. The revenue generated from these taxes is used to fund the various programs and services provided by state and local governments to their citizens.

Quiz 23: State and Local Taxes