Question 1

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

Nondomiciliary businesses are subject to tax in every state or country where they do business, even if they are not physically located in that location. This includes income tax, sales tax and other taxes depending on the type of business and the location. Nondomiciliary businesses are subject to taxation in all the states or countries in which they operate, even if they are based in a different state or country. This is because they are considered to have a nexus, or connection, in each jurisdiction where they have a presence, such as employees, properties, or sales. The specific tax laws and rates vary by jurisdiction, and businesses must comply with them to avoid penalties or legal disputes.

Question 2

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 3

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

Accepted Answer

Most states exempt purchases of inventory for resale from sales and use taxes because the final consumer will be the one paying the tax upon purchase. Inventory purchased for resale is generally exempt from sales and use taxes because the taxes are intended to be paid by the end consumer, not the business selling the goods. However, the rules and exemptions can vary by state and specific circumstances, so it's important to check with local tax authorities and a tax professional to ensure compliance.

Question 4

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 5

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 6

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, issued by the Supreme Court in 2018, overturned the physical presence standard for sales tax collection and established economic nexus as the new standard. This means that out-of-state companies can now be required to collect sales tax based on their sales volume or number of transactions in a state, even if they do not have a physical presence there. The Wayfair decision, made by the Supreme Court in 2018, overturned the physical presence requirement for sales tax collection responsibility, meaning that out-of-state companies can now be required to collect sales tax even if they do not have a physical presence in a state.

Question 7

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 8

Business income is allocated to the state of commercial domicile.

Accepted Answer

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

Question 9

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 10

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

Accepted Answer

The sales and use tax base is determined by each state's laws and can vary in terms of what is subject to the tax and at what rate. Each state has the autonomy to determine what goods and services are subject to sales and use tax, as well as the tax rate applied. As a result, the sales and use tax base can vary widely from state to state.

Question 11

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

Accepted Answer

Sales tax nexus refers to a company having a significant presence in a state, such as a physical location or a remote employee. In such states, the business is required to collect and remit sales tax on taxable transactions. In states where the business does not have a sales tax nexus, they are not required to collect and remit sales tax. Sales tax nexus refers to the connection between a business and a state that requires the business to register and collect sales tax in that state. Therefore, businesses are only required to collect sales tax in states where they have sales tax nexus.

Question 12

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 13

State tax law is comprised solely of legislative authority.

Accepted Answer

State tax law is created through the legislative process, where the state's lawmakers propose, debate, and pass statutes related to taxation. State tax law is created and enforced by the state legislature through the enactment of statutes and codes.

Question 14

All 50 states impose a sales and use tax system.

Accepted Answer

All 50 states in the United States have a sales and use tax system in place. However, the rates and rules of taxation may vary from state to state. This statement is true. All 50 states in the United States impose a sales and use tax system, although the rates and rules vary from state to state.

Question 15

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

Accepted Answer

The state tax base is typically calculated by starting with federal taxable income and making adjustments to account for any state-specific deductions, exemptions, and credits. The state tax base is determined by making adjustments to federal taxable income, such as adding back certain deductions and exemptions that are not allowed at the state level, and subtracting state-specific deductions or exemptions.

Question 16

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

Accepted Answer

This statement is true. Many states have been considering expanding the types of services subject to sales tax to generate additional revenue. Examples may include digital services, ride-sharing services, and more. Many states have been expanding the types of services subject to sales tax in recent years. For example, some states have started to tax digital goods and services, certain personal care services, and even streaming services like Netflix and Spotify. This trend is likely to continue as states seek new sources of revenue to fund their budgets.

Question 17

Economic presence always creates sales tax nexus.

Accepted Answer

Economic presence does not always create sales tax nexus. Whether or not economic presence creates sales tax nexus depends on the laws of each state. Some states have enacted economic nexus laws that apply to out-of-state sellers based on their level of economic activity in the state, while other states only have physical presence nexus laws. It is important for businesses to understand the sales tax laws in each state where they conduct business to determine if they have nexus and are required to collect and remit sales tax. Economic presence alone does not always create sales tax nexus. Each state has its own rules and thresholds for establishing nexus, and economic presence may be one factor considered. However, other factors such as physical presence, number of transactions or sales revenue may also be taken into account. It is important to review each state's specific rules and requirements for sales tax nexus.

Question 18

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 19

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 20

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.

Quiz 12: State and Local Taxes