Question 1

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 2

Kim Corporation,a calendar year taxpayer,has manufacturing facilities in States A and B.A summary of Kim's property holdings follows.

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Question 3

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 4

Shaker Corporation operates in two states,as indicated below.All goods are manufactured in State
A. Determine the sales to be assigned to both states to be used in computing Shaker's sales factor for the year. Both states follow the UDITPA and the MTC regulations in this regard.

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Question 5

Bobby and Sally work for the same employer,Wooster Manufacturing.Bobby manages the company's speculative investment portfolio,and Sally is a foreman in the factory.How are the salaries paid to Bobby and Sally treated in computing Wooster's payroll factor? Apply the general UDITPA rules.

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Question 6

You attend a tax webinar in which the presenter mentions 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 7

Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice.On which issues,if any,are the tax bases and procedures likely to overlap?

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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

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 10

Mercy Corporation,headquartered in F,sells wireless computer devices,including keyboards and bar code readers.Mercy's degree of operations is sufficient to establish nexus only in E and F.Determine its sales factor in those states.
State E applies a throwback rule to sales,while State F does not.State G has not adopted an income tax to date.Mercy reported the following sales for the year.All of the goods were shipped from Mercy's F manufacturing facilities.

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Question 11

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 12

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 13

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

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Question 14

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 15

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 16

Identify some state/local income tax issues facing pass-through entities such as S corporations,partnerships,and LLCs.

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Question 17

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 18

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 $2,500,000 from its business,municipal bond interest of $50,000,taxable interest of $100,000,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 19

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 20

You are completing the State A income tax return for Quaint Company.Quaint is a limited liability company,and it 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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Quiz 24: Multistate Corporate Taxation