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 in the state they are physically located in and potentially in other states based on factors such as sales, employees, and property. This is determined by each state's individual tax laws and regulations.

Question 2

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 state courts, and sometimes local ordinances, making it a combination of legislative, executive, and judicial inputs.

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 the physical presence rule, holding 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 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

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

Accepted Answer

State tax laws often start with the federal tax code as a baseline, and then make adjustments to arrive at the state tax base. This allows states to align their tax systems with the federal system while making any necessary deviations to suit their specific needs.

Question 6

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

Accepted Answer

Most states in the United States rely on a mix of sales and use tax, income or franchise tax, and property tax to generate revenue for their government operations.

Question 7

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

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

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.

Accepted Answer

When the seller of the property is not required to collect sales tax, the buyer is responsible for reporting and paying the use tax in the state where the purchased property will be used. This tax liability accrues in that state.

Question 9

Business income is allocated to the state of commercial domicile.

Accepted Answer

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

Question 10

Economic presence always creates sales tax nexus.

Accepted Answer

Economic presence does not automatically create sales tax nexus in all states. Each state has its own laws and regulations regarding sales tax nexus, and some states require more than just economic presence to establish nexus. It is important to check the specific laws of each state in which a business operates.

Question 11

All 50 states impose a sales and use tax system.

Accepted Answer

Not all 50 states impose a sales and use tax system; five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not have a statewide sales tax.

Question 12

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 in order to avoid double taxation. This allows them to allocate their income and expenses to each jurisdiction based on a specific formula, such as the percentage of sales or assets in each location, and only pay taxes on the portion of income earned in each jurisdiction.

Question 13

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

Accepted Answer

This varies by state, but in general, purchases of inventory for resale are considered exempt from sales and use taxes as they are expected to be resold to end consumers who will pay sales tax on the final purchase.

Question 14

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

Accepted Answer

Businesses are required to pay income tax in the state where their commercial domicile is located.

Question 15

Wyoming imposes an income tax on corporations.

Accepted Answer

Wyoming does not impose an income tax on corporations.

Question 16

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

Accepted Answer

Sales tax nexus refers to the connection between a business and state that requires the business to collect and remit sales tax. Businesses are only required to collect sales tax in states where they have established nexus, which can be created through various factors such as physical presence, economic activity or advertising.

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.

Accepted Answer

Sales taxes are collected and remitted to the government, and failure to do so can result in penalties and interest charges that increase the overall liability. In contrast, failure to pay income taxes may also result in penalties and interest, but the overall amount owed is usually less than the total sales tax liability.

Question 18

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

Accepted Answer

Each state has its own laws and regulations governing sales and use tax, which can result in differences in what goods and services are subject to tax, as well as the tax rate applied.

Question 19

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

Accepted Answer

Commercial domicile is indeed the location of a business's headquarters and where it conducts 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.

Accepted Answer

Many states are indeed expanding the types of services subject to sales tax in order to generate revenue and balance their budgets.

Quiz 12: State and Local Taxes