Question 1

Under Public Law 86-272,a state is prohibited from taxing a business if the only connection with the state is the _____________________ of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

Accepted Answer

The answer of Under Public Law 86-272,a state is prohibited...

Question 2

Parent and Minor form a non-unitary group of corporations.Parent is located in a state with an effective tax rate of 3%,while Minor's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities,the group should:

Accepted Answer

A) Having Parent charge Minor an annual management fee would shift income from Minor to Parent and reduce Minor's taxable income, resulting in overall tax savings for the group.
B) Shifting Parent's high-cost assembly and distribution operations to Minor would result in Parent paying lower taxes in the state with a higher tax rate, while Minor would pay taxes in the state with a lower tax rate, resulting in overall tax savings for the group.
C) Executing an intercompany loan, such that Minor pays deductible interest to Parent, would shift income from Minor to Parent and reduce Minor's taxable income, resulting in overall tax savings for the group.
Therefore, all of the above techniques are effective in reducing the overall tax liabilities of the non-unitary group.

Question 3

P.L.86-272 ____________________ (does/does not) create nexus when the seller inserts advertising flyers into the Sunday newspaper that is sold in the state.

Accepted Answer

The answer of P.L.86-272 ____________________ (does/does not) create nexus when...

Question 4

Hendricks Corporation sells widgets in two states.State A levies a 9% effective tax rate,and State B levies a 3% rate.A and B have adopted sales-factor-only apportionment formulas.To reduce overall multistate income tax liabilities,Hendricks should:

Accepted Answer

Removing all stored inventory from State A will reduce Hendricks Corporation's sales in State A, hence reducing its overall taxable income in State A. This will result in a decreased effective tax rate in State A and, therefore, reduce overall multistate income tax liabilities. The other options listed will not have a direct impact on sales or taxable income in State A.

Question 5

P.L.86-272 ____________________ (does/does not) create nexus when the sales representative approves a sale at the customer's location.

Accepted Answer

The answer of P.L.86-272 ____________________ (does/does not) create nexus when...

Question 6

The starting point in computing state taxable income generally is ____________________.

Accepted Answer

The answer of The starting point in computing state taxable...

Question 7

When a _________________________ is in effect,out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.

Accepted Answer

The answer of When a _________________________ is in effect,out-of-state sales...

Question 8

In determining taxable income for state income tax purposes,interest income from Federal bonds typically constitutes a(n) ____________________ modification.

Accepted Answer

The answer of In determining taxable income for state income...

Question 9

Parent Corporation owns all of the stock of Junior Corporation,a Delaware passive investment company.Parent operates strictly in nonunitary State B,which levies a 9% income tax.This year,Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent.In which state(s) will the interest income create an income tax liability?

Accepted Answer

The interest income earned by Junior Corporation is portfolio interest income, which is generally exempt from income tax under federal law and by most states, including nonunitary State B and Delaware. Therefore, the interest income will not create an income tax liability in either state. The dividend income received by Parent Corporation may be subject to income tax in the state(s) where Parent does business, but that information is not provided in the question.

Question 10

Parent and Junior form a unitary group of corporations.Parent is located in a state with an effective tax rate of 3%,while Junior's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities,the group should:

Accepted Answer

The answer of Parent and Junior form a unitary group...

Question 11

____________________ describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out-of-state entity's income.

Accepted Answer

The answer of ____________________ describe(s) the degree of business activity...

Question 12

Under the UDITPA's ____________________ concept,sales are assumed to take place at the point of delivery,as opposed to the location at which the shipment originates.

Accepted Answer

The answer of Under the UDITPA's ____________________ concept,sales are assumed...

Question 13

Although apportionment formulas vary among jurisdictions,most states use the same three factors in the formula.The factors are ____________________,____________________,and ____________________.

Accepted Answer

The answer of Although apportionment formulas vary among jurisdictions,most states...

Question 14

Apportionment is a means by which a corporation's _________________________ income is divided among the states in which it conducts business.

Accepted Answer

The answer of Apportionment is a means by which a...

Question 15

For most taxpayers,which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

Accepted Answer

Sales (gross receipts) is typically the strongest apportionment factor for tax reduction as it is the most variable and controllable by taxpayers. By increasing sales in states with lower tax rates or decreasing sales in states with higher tax rates, a taxpayer can effectively shift income and reduce their overall state tax liability. This strategy is commonly known as "tax planning by choice of jurisdiction" or "forum shopping."

Question 16

State Q has adopted sales-factor-only apportionment for its corporate income tax.As a result,a ____________________ (larger/smaller) percentage of an out-of-state corporation's income is assigned to tax in the state.

Accepted Answer

The answer of State Q has adopted sales-factor-only apportionment for...

Question 17

In the apportionment formula,most states assign more than a one-third weight to the ____________________ factor.

Accepted Answer

The answer of In the apportionment formula,most states assign more...

Question 18

Hopper Corporation's property holdings in State E are as follows.
Compute the numerator of Hopper's E property factor.

Accepted Answer

The answer of Hopper Corporation's property holdings in State E...

Question 19

In determining taxable income for state income tax purposes,interest income from another state's bonds typically constitutes a(n) ____________________ modification.

Accepted Answer