Deck 16: Multistate Corporate Taxation

Question 1

Most of the U.S. states have adopted an alternative minimum tax, similar to the Federal system, in taxing the income of corporations.

Answer 1

False

Question 2

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

Answer 2

True

Question 3

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

Answer 3

False

Question 4

A typical U.S. state piggybacks its collections of the corporate income tax, by letting the Federal government collect and remit the corresponding tax to the state.

Question 5

Typical indicators of income-tax nexus include the presence of customers in the state.

Question 6

Typically, corporate income taxes constitute about 20 percent of a state's annual tax collections.

Question 7

In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

Question 8

State and local politicians tend to apply new and increased taxes to taxpayers who are visitors to the jurisdiction, such as a tax on auto rentals, because the taxpayer cannot vote to reelect the lawmaker.

Question 9

Roughly five percent of all taxes paid by businesses in the U.S. are to state, local, and municipal jurisdictions.

Question 10

Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.

Question 11

Politicians frequently use tax credits and exemptions to create economic development incentives.

Question 12

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

Question 13

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.

Question 14

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

Question 15

A state can levy an income tax on a business only if the business was incorporated in the state.

Question 16

A typical state taxable income addition modification is for the Federal income tax paid for the tax year.

Question 17

Under P.L. 86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Question 18

Nonbusiness income receives tax-exempt treatment under all state corporate income taxes.

Question 19

All of the U.S. states use an apportionment formula based on the sales, property, and payroll factors.

Question 20

All of the U.S. states have adopted a tax based on the net taxable income of corporations.

Question 21

Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

Question 22

Most states' consumer sales taxes are paid by the final purchaser of the taxable asset.

Question 23

An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000. The payroll factor assigns $65,000 for this employee.

Question 24

The property factor includes business assets that the taxpayer owns, but also those merely used under a lease agreement.

Question 25

Typically exempt from the sales/use tax base is the purchase of lumber by a do-it-yourself homeowner, when she builds a deck onto her patio. This exemption is known as the "homestead rule."

Question 26

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

Question 27

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

Question 28

Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.

Question 29

S corporations flow-through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

Question 30

A taxpayer has nexus with a state for sales and use tax purposes if it has a physical presence in the state.

Question 31

A service engineer spends 80% of her time maintaining the employer's productive business property and 20% maintaining the employer's nonbusiness rental properties. This year, her compensation totaled $90,000. The payroll factor assigns $90,000 to the state in which the employer is based.

Question 32

Most states exempt consumer purchases of groceries from the collection of the local sales tax.

Question 33

The use tax is designed to complement the sales tax. A use tax typically covers purchases made out of state and brought into the jurisdiction.

Question 34

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.

Question 35

By making a water's edge election, the multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S. and E.U. affiliates.

Question 36

In most states, Federal S corporations must make a separate state-level election of the flow-through status.

Question 37

The property factor includes land and buildings used for business purposes.

Question 38

Typically included in the sales/use tax base is the purchase of tablet computers and cell phone equipment by a large manufacturing firm, whose sales force uses the items.

Question 39

Almost all of the states assess some form of consumer-level sales/use tax.

Question 40

A unitary business applies a combined apportionment formula, including data from operations of all of the affiliates.

Question 41

Marquardt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Marquardt's activities establish nexus for income tax purposes in both states. Marquardt's sales, payroll, and property among the states include the following. Z utilizes an equally weighted three-factor apportionment formula. Marquardt is incorporated in X. How much of Marquardt's taxable income is apportioned to Z?

A) $0
B) $225,000
C) $675,000
D) $3,000,000

Question 42

In most states, legal and accounting services are exempt from the sales/use tax base.

Question 43

Flint Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Flint's Federal taxable income is $750,000, which includes a $50,000 deduction for state income taxes. During the year, Flint received $10,000 interest on Federal obligations. X tax law does not allow a deduction for state income tax payments.
​
Flint's taxable income for X purposes is:

A) $810,000.
B) $800,000.
C) $790,000.
D) $750,000.

Question 44

The individual seller of a used auto should collect and remit sales tax to the state.

Question 45

Zhao Company sold an asset on the first day of the tax year for $500,000. Zhao's Federal tax basis for the asset was $300,000. Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $350,000. What adjustment, if any, should be made to Zhao's Federal taxable income in determining the correct taxable income for the typical state?

A) $0
B) ($50,000)
C) $50,000
D) $150,000

Question 46

Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's "garage sale."

Question 47

Ramirez Corporation is subject to tax only in State A. Ramirez generated the following income and deductions. ​
Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Ramirez's A taxable income is:

A) $495,000.
B) $500,000.
C) $545,000.
D) $595,000.

Question 48

The typical local property tax falls on both an investor's principal residence and her stock portfolio.

Question 49

A capital stock tax usually is structured as an excise tax imposed on a corporation's "net worth," using financial statement data to compute the tax.

Question 50

Under P.L. 86-272, which of the following transactions by itself would create nexus with a state?

A) Inspection by a sales employee of the customer's inventory for specific product lines.
B) Using an independent contractor who acts as a manufacturer's representative for the taxpayer through a sales office in the state.
C) Executing a sales campaign, using an advertising agency acting as an independent contractor for the taxpayer.
D) Maintenance of inventory in the state by an independent contractor under a consignment plan.

Question 51

Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation's sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing.
​
Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y.
​
Adams's income attributed to X is:

A) $0.
B) $3,250,000.
C) $3,900,000.
D) $5,000,000.
E) $6,000,000.

Question 52

Sales/use tax nexus is established for the taxpayer by the sales-solicitation activities of an independent contractor acting on the taxpayer's behalf.

Question 53

The model law relating to the assignment of income among the states for corporations is:

A) Public Law 86-272.
B) The Multistate Tax Treaty.
C) The Multistate Tax Commission (MTC).
D) The Uniform Division of Income for Tax Purposes Act (UDITPA).

Question 54

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. ​
Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

A) $1,000,000
B) $900,000
C) $180,000
D) $0

Question 55

The typical state sales/use tax falls on sales of both real and personal property.

Question 56

Which of the following is not immune from state income taxation, even if P.L. 86-272 is in effect?

A) Sale of office equipment that is used in the taxpayer's business.
B) Sale of office equipment that constitutes inventory to the purchaser.
C) Sale of a warehouse used in the taxpayer's business.
D) All of the above are protected by P.L. 86-272 immunity provisions.

Question 57

A city might assess a recording tax when a business takes out a mortgage on its real estate.

Question 58

Under P.L. 86-272, which of the following transactions by itself would create nexus with a state?

A) Order solicitation for a plot of real estate, approved and filled from another state.
B) Order solicitation for a computer, approved and filled from another state.
C) Order solicitation for a machine, with credit approval from another state.
D) The conduct of a training seminar for sales personnel as to how to install and operate a new software product.

Question 59

In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction from Federal income?

A) Interest on U.S. obligations.
B) Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes.
C) Federal corporate income taxes paid.
D) The amount by which the Federal depreciation deduction exceeds the corresponding state amount.

Question 60

In determining state taxable income, all of the following are adjustments to Federal income except:

A) Federal net operating loss.
B) Federal income tax expense.
C) Fringe benefits paid to officers and executives.
D) Dividends received from other U.S. corporations.

Question 61

Ting, a regional sales manager, works from her office in State W. Her region includes several states, as indicated in the sales report below. Determine how much of Ting's $300,000 compensation is assigned to the payroll factor of State W.

A) $0.
B) $90,000.
C) $120,000.
D) $300,000.

Question 62

The throwback rule requires that:

A) Sales of tangible personal property are attributed to the state where they originated, if the taxpayer is not taxable in the state of destination.
B) Sales of tangible personal property are attributed to the seller's state, even if the taxpayer is not taxable in the state of destination.
C) Sales of services are attributed to the state of commercial domicile.
D) Capital gain/loss is attributed to the state of commercial domicile.

Question 63

Britta Corporation's entire operations are located in State A. Eighty percent ($800,000) of Britta's sales are made in A and the remaining sales ($200,000) are made in State B. B has not adopted a corporate income tax. If A has adopted a throwback rule, the numerator of Britta's A sales factor is:

A) $0.
B) $200,000.
C) $800,000.
D) $1,000,000.

Question 64

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. ​
X utilizes an equally weighted three-factor apportionment formula. How much of José's taxable income is apportioned to X?

A) $120,000
B) $450,000
C) $780,000
D) $900,000

Question 65

Trayne Corporation's sales office and manufacturing plant are located in State X. Trayne also maintains a manufacturing plant and sales office in State W. For purposes of apportionment, X defines payroll as all compensation paid to employees, including elective contributions to § 401(k) deferred compensation plans. Under the statutes of W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Trayne incurred the following personnel costs. Trayne's payroll factor for State X is:

A) 100.00%.
B) 66.67%.
C) 62.50%.
D) 50.00%.

Question 66

Net Corporation's sales office and manufacturing plant are located in State X. Net also maintains a manufacturing plant and sales office in State W. For purposes of apportionment, X defines payroll as all compensation paid to employees, including contributions to § 401(k) deferred compensation plans. Under the statutes of W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Net incurred the following personnel costs. Net's payroll factor for State W is:

A) 50.00%.
B) 37.50%.
C) 33.33%.
D) 0.00%.

Question 67

Guilford Corporation is subject to franchise tax in State Z. The tax is imposed at a rate of 2.5% of the taxpayer's net worth that is apportioned to the state by use of a two factor (sales and property equally weighted) formula. The property factor includes real and tangible personal property, valued at net book value at the end of the taxable year.
Sixty percent of Guilford's sales are attributable to Z, and $200,000 of the net book value of Guilford's tangible personal property is located in Z.
Determine the Z franchise tax payable by Guilford this year, given the following end-of-the year balance sheet.
​

A) $0, due to the negative retained earnings
B) $6,050
C) $8,250
D) $13,750

Question 68

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a customer in B. This activity is not sufficient for General to create nexus with B. State B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in both A and B.
B) $100,000 in A.
C) $100,000 in B.
D) In both A and B, according to the apportionment formulas of each.

Question 69

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following. ​
X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

A) $0
B) $333,333
C) $500,000
D) $1,000,000

Question 70

Valdez Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. ​
Valdez's O property factor is:

A) 35.0%.
B) 37.2%.
C) 39.5%.
D) 53.8%.

Question 71

Boot Corporation is subject to income tax in States A and B. Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. ​
How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?

A) ($50,000)
B) $50,000
C) $16,100
D) ($16,100)

Question 72

Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. Bert's State M property factor is:

A) 75.0%.
B) 66.7%.
C) 64.9%.
D) 64.5%.

Question 73

In the broadest application of the unitary theory, the U.S. unitary business files a combined tax return using factors and income amounts for all affiliates:

A) Organized in the U.S.
B) Organized in NAFTA countries.
C) Organized anywhere in the world.
D) As dictated by the tax treaties between the U.S. and the other countries.

Question 74

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to an agency of the U.S. government. State A applies a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in A.
B) $50,000 in A, with the balance exempted from other states' sales factors under the Colgate doctrine.
C) $100,000 in A.
D) In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.

Question 75

Simpkin Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales.
Simpkin's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
​
Simpkin's apportionable income assigned to B is:

A) $1,000,000.
B) $533,333.
C) $475,000.
D) $0.

Question 76

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S. government. General has not established nexus with B. State A does not apply a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

A) In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
B) $100,000 in A.
C) $100,000 in B.
D) $0 in both A and B.

Question 77

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a customer in B. This activity is not sufficient for General to create nexus with B. State A applies a throwback rule, but State B does not. In which state(s) will the sale be included in the sales factor numerator?

A) $0 in both A and B.
B) $100,000 in A.
C) $100,000 in B.
D) In both A and B, according to the apportionment formulas of each.

Question 78

Cruz Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales.
Cruz's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
​
Cruz's apportionable income assigned to C is:

A) $1,000,000.
B) $273,333.
C) $200,000.
D) $0.

Question 79

Given the following transactions for the year, determine Comp Corporation's D payroll factor denominator. State D has adopted the principles of UDITPA.

A) $1,000,000
B) $900,000
C) $700,000
D) $600,000

Question 80

Helene Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales.
Helene's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows.
​
Helene's apportionable income assigned to A is:

A) $0.
B) $266,667.
C) $311,100.
D) $1,000,000.