Question 1

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 state or states in which they have a physical presence, such as an office or warehouse, or generate a certain amount of sales. This is determined by each state's economic nexus laws. However, if a business operates solely within one state, it is subject to income tax in that state regardless of whether it engages in interstate commerce.

Question 2

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 tax liabilities can accumulate quickly and penalties for noncompliance can be steep, resulting in a larger tax liability than failure to pay income taxes in some cases.

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.

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 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 indeed reverse the Quill decision, allowing states to require out-of-state businesses to collect sales taxes from in-state customers regardless of physical presence.

Question 5

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.

Accepted Answer

When the seller of taxable property is not required to collect sales tax, the buyer is responsible for paying the use tax in the state where the property will be used. Use tax liability therefore accrues in the state of use.

Question 6

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

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

Question 7

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

Accepted Answer

Businesses are required to pay income tax in their state of commercial domicile, which is the state where the business is legally based, registered, and operates from.

Question 8

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

Accepted Answer

The state tax base is typically based on federal taxable income with various adjustments made to conform to state tax laws and policies.

Question 9

Wyoming imposes an income tax on corporations.

Accepted Answer

Wyoming is one of the few states in the United States that does not impose a state income tax on individuals or corporations.

Question 10

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

Accepted Answer

Many states have indeed started to expand the types of services that are subject to sales tax in order to increase their revenue streams.

Question 11

Economic presence always creates sales tax nexus.

Accepted Answer

Economic presence alone does not always create sales tax nexus. Each state has its own rules and thresholds for determining nexus, which may include factors such as the amount of sales or transactions conducted within the state.

Question 12

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

Accepted Answer

Sales tax nexus is determined by a variety of factors, including physical presence, economic activity, and other criteria. Businesses must collect sales tax only in states where they have established nexus.

Question 13

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

Accepted Answer

Most states offer a sales tax exemption for inventory purchases because sales tax is meant only to be applied to final consumer purchases, not wholesale transactions.

Question 14

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

Accepted Answer

Each state has its own laws regarding what is subject to sales and use tax, as well as the rates at which the tax is applied. Therefore, the tax base can differ significantly between states.

Question 15

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

Accepted Answer

Businesses subject to income tax in more than one jurisdiction have the right to apportionment. Apportionment is the process of dividing or allocating income or expenses between different taxing jurisdictions based on a formula that takes into account factors such as sales, payroll, and property. This ensures that each jurisdiction receives a fair share of the taxes based on the portion of the income or expenses that are attributable to that particular jurisdiction.

Question 16

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 17

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

Accepted Answer

Commercial domicile refers to the physical location of a business's main office or headquarters, and is where its management team makes important decisions and directs its operations.

Question 18

Business income is allocated to the state of commercial domicile.

Accepted Answer

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

Question 19

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. While the specific taxes and rates may vary, all states rely on a combination of sales and use tax, income or franchise tax, or property tax to generate revenue for government operations.

Question 20

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.

Quiz 23: State and Local Taxes