Question 1

Pail Corporation is a merchandiser.It purchases overstock garments from various suppliers and sells the goods in its State L retail store.Determine the total sales that are subject to the L consumer sales tax.

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Question 2

Determine Bowl's sales factors for States K,M,and N.
Bowl Corporation's manufacturing facility,distribution center,and retail store are located in State K.Bowl sells its products to residents located in States K,M,and N.
Sales to residents of K are conducted through a retail store.Sales to residents of M are obtained by Bowl's sales representative,who has the authority to accept and approve sales orders.Residents of N can purchase Bowl's product only if they place an order online and arrange to take delivery of the product at Bowl's shipping dock.Bowl's sales were as follows.
  Bowl's activities within the three states are limited to those described above.All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales,property,and payroll are equally weighted.K sources dock sales to the destination state.

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Question 3

Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S.states.To which state(s)' payroll factor(s)is Sylvia's compensation assigned? Apply the general UDITPA rules.

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Question 4

Compute Quail Corporation's State Q taxable income for the year.

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Question 5

Hermann Corporation is based in State A (corporate income tax rate 10%).It sells its goods to customers in both A and State B (corporate income tax rate 4%).Hermann's state taxable income for the year is $1 million,30% of which relates to B customers.Hermann's level of activities in B is insufficient to create nexus there,but A has adopted a throwback rule as to multistate sales.Would Hermann reduce its total state income tax liability by creating nexus with B,say by allowing its sales force to make credit decisions? Elaborate.

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Question 6

Node Corporation is subject to tax only in State X.Node generated the following income and deductions.State income taxes are not deductible for X income tax purposes.

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Question 7

List which items are included in the payroll factor of a state.Consider all forms of compensation that an employee might receive.Apply the general UDITPA rules.

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Question 8

A number of court cases in the last several decades have involved the application of a state's nexus rules concerning a business taxpayer.What is the significance of the term nexus when discussing state income taxation?

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Question 9

A local business wants your help in making a decision about a large capital investment.Should your advice concentrate on tax or non-tax implications of the decision?

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Question 10

Garcia Corporation is subject to tax in States G,H,and I.Garcia's compensation expense includes the following.

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Question 11

In international taxation,we discuss income sourcing rules and the permanent establishment doctrine.In multistate taxation,an analogous term might be the "ultimate destination concept." Define this term,and identify at least two of the most important exceptions to the general rule.

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Question 12

A state wants to increase its income tax collections,but politically it would be unwise to raise taxes on in-state individuals or businesses.Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

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Question 13

Troy,an S corporation,is subject to tax only in State A.On Schedule K of its Federal Form 1120S,Troy reported ordinary income of $2,000,000 from its business,municipal bond interest of $150,000,taxable interest of $150,000,and charitable contributions of $300,000.A does not recognize S status,but it does follow the Federal provisions with respect to the determination of taxable income for a corporation.Determine Troy's A taxable income.

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Question 14

Hambone Corporation is subject to the State E capital stock tax.The tax is levied at 2% of the entity's net worth that is apportioned to E.Hambone conducts 30% of its operations in E.Hambone's current book balance sheet is as follows,with amounts in millions.Compute Hambone's liability for the E capital stock tax.

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Question 15

You are completing the State A income tax return for Quaint Company,LLC.Quaint operates in various states,showing the following results.
  In A,all interest is treated as business income.A uses a sales-only apportionment factor.Compute Quaint's A taxable income.

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Question 16

Indicate for each transaction whether a sales (S)or use (U)applies,or whether the transaction is nontaxable (N).Where the laws vary among various states,assume that the most common rules apply.All taxpayers are individuals.

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Question 17

Compost Corporation has finished its computation of Federal taxable income.In State Q,the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications.List at least five such modifications that Compost is likely to encounter.

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Question 18

Kim Corporation,a calendar year taxpayer,has manufacturing facilities in States A and B.A summary of Kim's property holdings follows.
  
  *Unrelated to Kim's regular business and operations.
Determine Kim's property factors for the two states.A's statutes provide that the average historical cost of business property is to be included in the property factor.B's statutes provide that the property factor is based on the average depreciated basis of in-state business property.
Kim Corporation's property factor is 61.90% for State A,and its property factor for State B is 44.53%.Under the statutes of A and B,nonbusiness property (i.e. ,the rental property)is not taken into consideration in computing the property factor.The basis for determining the average property in A is historical cost,whereas the value employed for B is depreciated cost.

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Question 19

Discuss how a multistate business divides up its corporate taxable income among the states in which it operates.Hint: use the terms allocation and apportionment in your comments.

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Question 20

Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice.In what areas might your Federal income tax knowledge also be applicable in your new assignment?

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Quiz 16: Multistate Corporate Taxation