Question 1

The unitary concept has no application where a group of related businesses are organized as separate corporate entities.

Accepted Answer

The unitary concept can be applied to related businesses even if they are organized as separate entities, as long as there is significant interdependence among them. This concept refers to the idea that multiple entities should be treated as a single economic entity for tax purposes.

Question 2

D Corporation operates in two states, Y and Z.Both states impose a state income tax.For the current year, D has taxable income of $5,000,000 (after state adjustments).Such income consists of $4,000,000 of business income and $1,000,000 of nonbusiness income attributable solely to State Y.D conducts sufficient activities in both states to create nexus.Both states allocate nonbusiness income and apportion business income using a three-factor formula in which sales, payroll, and property are equally weighted.The current year factors are as follows: $\begin{array}{lll}&\text { State } Y&\text { State } Z\
\text { Sales } & 80 \% & 20 \% \
\text { Property } & 40 \% & 60 \% \
\text { Payroll } & 60 \% & 40 \%
\end{array}$ What is D's State Y taxable income for the current year.

Accepted Answer

To calculate D's State Y taxable income, we first determine the apportionment percentage for State Y using the three-factor formula (sales, property, payroll). The formula is: (Sales% + Property% + Payroll%) / 3. For State Y, this is: (80% + 40% + 60%) / 3 = 180% / 3 = 60%. The business income apportioned to State Y is 60% of $4,000,000 = $2,400,000. The nonbusiness income attributable solely to State Y is $1,000,000. Therefore, D's State Y taxable income is $2,400,000 (business income) + $1,000,000 (nonbusiness income) = $3,400,000.

Question 3

X Corp.buys property in State X that imposes a sales tax of 4 percent.X transports the property into State Y for use in its business.State Y imposes a sales tax of 6 percent.As a result of this transaction, State Y will likely impose

Accepted Answer

When property is transported into a state for use in business, the state typically imposes a use tax. In this case, since X Corp. purchased the property in a state with a lower sales tax and then transported it into a state with a higher sales tax, State Y will likely assess a use tax on the property.

Question 4

The sum of the apportionment percentages for the states in which a corporation conducts business must always equal 100 percent.

Accepted Answer

The apportionment percentages for a corporation conducting business in multiple states do not necessarily add up to 100 percent. These percentages are based on formulas that consider factors like sales, property, and payroll in each state, and the total can be more or less than 100 percent depending on the corporation's distribution of activities.

Question 5

B Corp.has a manufacturing plant in State Y.It has sales in both States Y and Z; however, its activities in State Z are insufficient to create nexus under P.L.86-272.For the current year, B has sales as follows: Sales shipped from State Y to customers in State Y
$\$ 20,000,000$
Sales shipped from State $\mathrm { Y }$ to customers in State $\mathrm { Z }$
$12,000,000$
Dock sales to State $Z$ customers $\quad 8,000,000$ State Y has enacted a throwback rule.What is B's State Y sales factor for the current year?

Accepted Answer

The sales factor for State Y includes all sales shipped from State Y to customers in State Y (\$20,000,000), sales shipped from State Y to customers in State Z (\$12,000,000), and dock sales to State Z customers (\$8,000,000) because the activities in State Z are insufficient to create nexus under P.L. 86-272 and State Y has enacted a throwback rule. Therefore, all sales are attributed to State Y, making the sales factor 100%.

Question 6

X Corp.has a manufacturing facility in State A.It has sales in State B, as well as in State A.X conducts sufficient activities in both states to create nexus.During the current year, X has sales as follows: Sales shipped from State A to customers in State A
 $\$ 20,000,000$

Sales shipped from State A to customers in State B
$22,000,000$
Dock sales to State B customers $\quad 8,000,000$ What is X's State A sales factor for the current year?

Accepted Answer

The answer of X Corp.has a manufacturing facility in State...

Question 7

Corporation F is a foreign subsidiary of Corporation D, a U.S.corporation operating solely in State A.Corporation F conducts no business in the United States; however, corporations D and F comprise a unitary group.If a "water's edge" election is made, none of Corporation F's income will be subject to taxation by State A.

Accepted Answer

If a "water's edge" election is made, only the income of U.S. corporations that are part of the unitary group will be subject to taxation by State A. Since Corporation F conducts no business in the United States, its income will not be subject to taxation by State A.

Question 8

All states apply the same tests in determining whether a group of businesses constitutes a "unitary" business.

Accepted Answer

While all states generally use similar criteria to determine whether a group of businesses is unitary, there are some variations in how the tests are applied and which factors are given more weight in the analysis.

Question 9

T Corp.owns investment securities that are physically located in State A.T is incorporated in State B and its home office (from which the securities portfolio is managed) is located in State C.All three states impose a state income tax.The earnings on the investment securities will most likely be taxed in

Accepted Answer

The answer of T Corp.owns investment securities that are physically...

Question 10

S Corp.buys tangible personal property for $100,000 in State Z that imposes a sales tax of 5 percent.S intends to use $20,000 of the property in its business and resell the remaining $80,000.What is S's sales tax liability?

Accepted Answer

S Corp is liable for sales tax only on the $20,000 worth of property it intends to use in its business, not on the $80,000 intended for resale. The sales tax on $20,000 at 5% is $1,000.

Question 11

X Corp.has a manufacturing facility in State A.It has sales in State B, as well as in State A.X conducts sufficient activities in both states to create nexus.During the current year, X has sales as follows: Sales shipped from State A to customers in State A 
$\$ 10,000,000$

Sales shipped from State A to customers in State B 
$8,000,000$
Dock sales to State B customers $\quad 2,000,000$ 
What is X's State A sales factor for the current year?

Accepted Answer

The answer of X Corp.has a manufacturing facility in State...

Question 12

Real property taxes are imposed based on

Accepted Answer

Real property taxes are imposed based on the current fair market value of the real estate. This is because property taxes are meant to be a reflection of the value of the property being taxed, and the fair market value is the most accurate representation of that value. Historical cost and net book value may be used for accounting or financial reporting purposes, but they are not relevant to determining property taxes. Depreciation is also not a factor in determining property taxes, as it is a non-cash expense and therefore not relevant to the actual value of the property.

Question 13

Which of the following types of income would probably be considered "business income" for state income tax purposes?

Accepted Answer

Business income is generally considered the income earned from a taxpayer's trade or business operations. Royalties from the licensing of a patent developed in the ordinary course of a taxpayer's research and development activities would be considered business income. The other options do not involve income earned from a taxpayer's trade or business activities and would not be considered business income.

Question 14

Where consolidated returns are required for state purposes, they include only those members of the affiliated group that possess nexus with the taxing state.

Accepted Answer

Consolidated returns for state purposes only include members of the affiliated group that have established nexus (i.e. a physical presence or significant economic presence) with the taxing state.

Question 15

D Corporation operates in two states, Y and Z.Both states impose a state income tax.For the current year, D has taxable income of $5,000,000 (after state adjustments).Such income consists of $4,000,000 of business income and $1,000,000 of nonbusiness income attributable solely to State Y.D conducts sufficient activities in both states to create nexus.Both states allocate nonbusiness income and apportion business income using a three-factor formula.State Y equally weights the three factors, while State Z assigns double weight to the sales factor.The current year factors are as follows: $\begin{array}{lll}&\text { State } Y&\text { State } Z\
\text { Sales } & 80 \% & 20 \% \
\text { Property } & 40 \% & 60 \% \
\text { Payroll } & 60 \% & 40 \%
\end{array}$ What is D's State Z taxable income for the current year.

Accepted Answer

The answer of D Corporation operates in two states, Y...

Question 16

As of the close of the current year, Z Corp.holds assets with a fair market value of $1,000,000 and a book value of $800,000.Z has liabilities of $300,000, Z conducts all of its business in State A that imposes a franchise tax at a rate of 4 percent.What is Z's franchise tax liability for the current year?

Accepted Answer

The franchise tax liability is calculated based on the net worth of the company, which is assets minus liabilities. Here, the net worth is $1,000,000 (fair market value of assets) - $300,000 (liabilities) = $700,000. The tax rate is 4%, so the tax liability is 4% of $700,000 = $28,000.

Question 17

T Corp.owns investment securities that are physically located in State A.T is incorporated in State B and its home office (from which the securities portfolio is managed) is located in State C.States B and C impose a state income tax.The earnings on the investment securities will most likely be taxed in

Accepted Answer

The earnings on the investment securities will most likely be taxed in State C, where T Corp.'s home office is located and from which the portfolio is managed. Although State B may impose a state income tax as well, it would typically only apply to income earned within the state's borders, which is not the case for T Corp.'s investment portfolio physically located in State A. State A, where the securities are physically located, may also impose a tax, but it is unlikely to do so since T Corp. is not incorporated or headquartered in that state. Therefore, the most likely state to impose an income tax on T Corp.'s investment earnings is State C.

Question 18

Which of the following types of income would probably constitute "nonbusiness income" for state income tax purposes?

Accepted Answer

The answer of Which of the following types of income...

Question 19

M Corporation's federal taxable income for the current year is $200,000.Such amount includes $12,000 of interest on U.S.government obligations and excludes $10,000 of interest on state and local obligations ($8,000 on State A obligations and $2,000 on State B obligations.).M deducted $15,000 of state income taxes in arriving at federal taxable income.M is taxable only in State A.State A allows a deduction for interest incurred on federal obligations, taxes out-of-state municipal bond interest, and disallows a deduction for state income taxes.What is M's state taxable income?

Accepted Answer

The answer of M Corporation's federal taxable income for the...

Question 20

M Corporation's federal taxable income for the current year is $100,000.Such amount includes $10,000 of interest on U.S.government obligations and excludes $6,000 of interest on state and local obligations.M deducted $3,000 of state income taxes in arriving at federal taxable income.M is taxable only in State A.State A allows a deduction for interest incurred on federal obligations, taxes all municipal bond interest, and disallows a deduction for state income taxes.What is M's state taxable income?

Accepted Answer