Question 1

Article 1 of the U.S.Constitution,referred to as the commerce clause,prohibits state governments from using a tax to discriminate against interstate commerce.

Accepted Answer

Article 1 of the U.S. Constitution, also known as the Commerce Clause, gives Congress the power to regulate interstate commerce and prohibits state governments from discriminating against or burdening interstate commerce through taxes or regulations.

Question 2

The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.

Accepted Answer

The sales factor in the UDITPA state income tax apportionment formula is calculated by dividing in-state sales by total sales.

Question 3

All states assessing an income tax use the same formula for apportionment purposes.

Accepted Answer

Each state has its own formula for apportioning income tax. Some states use a formula based solely on sales within the state, while others may consider other factors such as payroll or property in addition to sales. The formulas may also differ in the weights assigned to each factor.

Question 4

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Accepted Answer

Multi-state businesses can reduce their overall tax cost by shifting income from high-tax states to low-tax states, not the other way around.

Question 5

Luttrix Inc.does business in Nebraska (6% tax rate)and Colorado (3% tax rate).All other factors being equal,Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado.

Accepted Answer

The lower tax rate in Colorado will result in lower state taxes for Luttrix Inc. compared to Nebraska. Therefore, constructing a manufacturing plant in Colorado will reduce their state taxes.

Question 6

According to Public Law 86-272,the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Accepted Answer

Public Law 86-272 specifically prohibits a state from imposing a net income tax on a seller whose only contact with the state is the solicitation of orders for the sale of tangible personal property, and who does not maintain a place of business in the state. Therefore, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Question 7

Non-resident firms selling tangible goods to in-state residents can use P.L.86-272 to avoid having income tax nexus in a state.

Accepted Answer

P.L. 86-272 is a federal law that allows non-resident firms to sell tangible goods to in-state customers without triggering state income tax nexus as long as certain conditions are met. This protection only applies to the sale of tangible personal property and does not apply to other types of transactions, such as services or intangible property.

Question 8

The sales factor in the UDITPA state income tax apportionment formula equals out-of-state sales divided by total sales.

Accepted Answer

The sales factor in the UDITPA (Uniform Division of Income for Tax Purposes Act) state income tax apportionment formula equals in-state sales divided by total sales.

Question 9

The UDITPA formula for state income tax apportionment consists of three factors: sales,payroll,and profit.

Accepted Answer

The UDITPA (Uniform Division of Income for Tax Purposes Act) formula for state income tax apportionment traditionally consists of three factors: sales, payroll, and property, not profit.

Question 10

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax,the after-tax cost of the state tax is $13,000.

Accepted Answer

The after-tax cost of the state tax is calculated by subtracting the amount of tax paid from the corporation's taxable income, which reduces the amount of federal income tax owed.

In this case, the state income tax paid was $20,000. Since the corporation has a 35% marginal federal income tax rate, this reduces the amount of federal income tax owed by $7,000 (35% of $20,000). Therefore, the after-tax cost of the state tax is $13,000 ($20,000 - $7,000).

Question 11

Article 1 of the U.S.Constitution,referred to as the commerce clause,prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Accepted Answer

The commerce clause in Article 1 of the U.S. Constitution gives Congress the power to regulate commerce between states and prohibits states from discriminating against out-of-state businesses or imposing taxes or other burdens on interstate commerce. Therefore, a state cannot charge an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Question 12

Multi-State,Inc.does business in two states.Its apportionment percentage in state A is 63%.Its apportionment percentage in the other state can be no more than 37%.

Accepted Answer

The question does not provide any information on the minimum apportionment percentage in the other state, so we cannot assume that it is less than or equal to 37%. Therefore, it is false to say that "its apportionment percentage in the other state can be no more than 37%."

Question 13

If Gamma Inc.is incorporated in Ohio and has its commercial domicile in Cleveland,the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

Accepted Answer

The answer of If Gamma Inc.is incorporated in Ohio and...

Question 14

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Accepted Answer

The answer of A corporation is usually subject to tax...

Question 15

In the United States,corporations are subject only to taxes imposed by the federal government.

Accepted Answer

Corporations in the United States are subject to taxes imposed by both the federal government and state governments.

Question 16

BiState Inc.conducts business in North Carolina and South Carolina.If BiState's apportionment percentage in North Carolina is 63%,its apportionment percentage in South Carolina can be no more than 37%.

Accepted Answer

The answer of BiState Inc.conducts business in North Carolina and...

Question 17

The UDITPA formula for apportioning income among states is based on four equally weighted factors.

Accepted Answer

The UDITPA (Uniform Division of Income for Tax Purposes Act) formula typically uses three equally weighted factors: property, payroll, and sales, to apportion income among states.

Question 18

The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.

Accepted Answer

When taxpayers itemize their deductions on their federal income tax return, they are allowed to deduct the amount of state income taxes they have paid during the year. This reduces the amount of federal income tax owed, effectively decreasing the cost of the state income taxes.

Question 19

Supplies,Inc.does business in Georgia (6% tax rate)and Alabama (5% tax rate).All other factors being equal,the company will reduce state taxes if it increases the compensation paid to its employees in Alabama.

Accepted Answer

If Supplies, Inc. increases the compensation paid to its employees in Alabama, it will reduce its taxable income in Alabama and therefore pay less state taxes at a lower tax rate of 5% compared to Georgia's 6% tax rate.

Question 20

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

Accepted Answer

The payroll factor in the UDITPA state income tax apportionment formula includes only the compensation paid to employees for services performed within the state, not necessarily executive compensation.

Quiz 13: Jurisdictional Issues in Business Taxation