Deck 15: Multistate Corporate Taxation

Question 1

A state cannot levy a tax on a business unless the business was incorporated in the state.

Answer 1

False
Nexus is the threshold authorizing the state to levy a tax.

Question 2

All but a few states have not adopted a tax based on net taxable income.

Answer 2

True

Question 3

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

Answer 3

False
About forty percent of all business taxes are paid to state and local agencies.

Question 4

States collect the most tax dollars from the sales/use tax.

Question 5

Most businesses can use the Federal tax year end for the state income tax.

Question 6

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

Question 7

In some states,there is a "business privilege" tax,based on net taxable income.

Question 8

States use the same apportionment factors and formula.

Question 9

Politicians use tax devices to create economic development incentives.

Question 10

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

Question 11

Double weighting the property factor effectively increases the tax burden on taxpayers based in the state,such as corporations with in-state headquarters.

Question 12

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

Question 13

Nonbusiness income includes rentals of investment property.

Question 14

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 tangible personal property in the state.

Question 15

A typical state taxable income addition modification is the Federal income tax expense.

Question 16

Some states enforce their tax laws more aggressively than do others.

Question 17

Typical indicators of nexus include the presence of employees based in the state,and the ownership or lease of realty there.

Question 18

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 19

Only a few states have adopted an alternative minimum tax,similar to the Federal system.

Question 20

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

Question 21

An assembly worker earns a $30,000 salary and receives a fringe benefit package worth $15,000.The payroll factor assigns $45,000 for this employee.

Question 22

The property factor includes assets that the taxpayer owns,but not those merely used under a lease agreement.

Question 23

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

Question 24

A unitary business is treated as a single entity for state tax purposes,with a combined apportionment formula including data from all of the operations of the business.

Question 25

By making a water's edge election,the multinational taxpayer can limit the reach of the unitary theory to U.S.-based factors and income.

Question 26

S corporations must withhold taxes on the portions of the entity's income allocated to its shareholders.

Question 27

Typically exempt from the sales/use tax base is the purchase of seed and feed by a farmer.

Question 28

The property factor includes real property and construction in progress.

Question 29

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

Question 30

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.

Question 31

A service engineer spends 30% of her time maintaining the employer's productive business property and 70% maintaining the employer's nonbusiness rental properties.This year,her compensation totaled $90,000.The payroll factor assigns $90,000 among the states in which the employer conducts business,using a "time spent" formula.

Question 32

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 33

Typically exempt from the sales/use tax base is the purchase by a church of printed music for its choir.

Question 34

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

Question 35

Most states' consumer sales taxes apply directly to the final purchaser of the taxable asset,with the purchaser remitting the tax to the state treasury.

Question 36

Typically exempt from the sales/use tax base is the purchase of office supplies by a large clothing retailer that is incorporated in the state.

Question 37

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

Question 38

Only a few states require that Federal S corporations make a separate state-level election of the flow-through status.

Question 39

Most states waive the collection of sales tax on groceries.

Question 40

A few states recognize an entity's S corporation status,such that taxable income flows through directly to shareholders,but they still assess a state-level tax on the entity.

Question 41

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

A)Order solicitation for a computer, approved and filled from another state.
B)Order solicitation for a marketable security, 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 customers as to how to install and operate a new software product.

Question 42

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

Question 43

José Corporation realized $600,000 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)$600,000.
B)$520,200.
C)$200,000.
D)$79,800.

Question 44

Kurt Corporation realized $600,000 taxable income from the sales of its products in States X and Z.Kurt's activities establish nexus for income tax purposes in both states.Kurt's sales,payroll,and property among the states include the following.

Z utilizes an equally weighted three-factor apportionment formula.How much of Kurt's taxable income is apportioned to Z?

A)$0.
B)$133,320.
C)$300,000.
D)$600,000.
E)$2,000,000.

Question 45

Norman 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,Norman has rented 20% of its Y facility to an unaffiliated corporation.Norman generated $600,000 net rental income and $2,400,000 income from manufacturing.
For X and Y purposes,rental income is classified as allocable nonbusiness income.By applying the statutes of each state,Norman determined that its apportionment factors are .75 for X and .25 for Y.
Norman's income attributed to X is:

A)$0.
B)$1,800,000.
C)$2,250,000.
D)$2,400,000.
E)$3,000,000.

Question 46

Use tax would be due if an individual purchased an auto in State A and used it at his home in State B.

Question 47

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

A)Net operating loss.
B)Federal income tax expense.
C)Dividend income.
D)Cost of goods sold.
E)State income tax refunds.

Question 48

Wailes Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Wailes' Federal taxable income is $650,000,which includes a $60,000 deduction for state income taxes.During the year,Wailes received $50,000 interest on Federal obligations.X does not allow a deduction for state income tax payments.
Wailes' taxable income for X purposes is:

A)$600,000.
B)$650,000.
C)$660,000.
D)$710,000.

Question 49

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

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

Question 50

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

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

Question 51

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)The amount by which the Federal deduction for depreciation exceeds the depreciation deduction permitted for state tax purposes.
D)The amount by which the state loss from the disposal of assets exceeds the Federal loss from such disposal.
E)b and c

Question 52

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 53

Typically exempt from the sales/use tax base is the purchase of inventory from a competitor who is closing down a long-lived business.

Question 54

José Corporation realized $600,000 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)$600,000.
C)$120,000.
D)$80,000.
E)$0.

Question 55

Mandy Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z.Mandy's activities establish nexus for income tax purposes only in Z.Mandy's sales,payroll,and property among the states include the following.

X utilizes a double-weighted sales factor in its three-factor apportionment formula.How much of Mandy's taxable income is apportioned to X?

A)$1,000,000.
B)$501,613.
C)$491,700.
D)$408,300.
E)$0.

Question 56

Perez Corporation is subject to tax only in State A.Perez 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.Perez's A taxable income is:

A)$530,000.
B)$500,000.
C)$430,000.
D)$400,000.

Question 57

City and county governments depend heavily on collections from a property tax..

Question 58

Dough Company sold an asset on the first day of the tax year for $100,000.Dough's tax basis for the asset was $60,000.Because of differences in cost recovery schedules,the state regular-tax basis in the asset was $40,000.What adjustment,if any,should be made to Federal taxable income in determining the correct taxable income for the typical state?

A)$0.
B)$20,000.
C)$45,000.
D)($20,000).

Question 59

A city might assess a professional occupation tax on an architect.

Question 60

Under most local property tax laws,the value of an asset is fixed after an appraisal by the taxing jurisdiction.

Question 61

Fowl Corporation's entire operations are located in State A.Seventy-five percent ($900,000)of Fowl's sales are made in A and the remaining sales ($300,000)are made in State B.Fowl's activities in B are not sufficient to create nexus in that state.If A has adopted a throwback rule,the numerator of the A sales factor is:

A)$1,200,000.
B)$900,000.
C)$300,000.
D)$0.

Question 62

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 M property factor is:

A)41.67%.
B)55.0%.
C)56.2%.
D)58.33%.
E)77.0%.

Question 63

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

A)organized in the U.S.
B)organized in North America.
C)organized anywhere in the world.
D)owned more than 50% by other affiliates in the group.
E)owned more than 80% by any other affiliate in the group.

Question 64

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)80.00%.
C)78.95%.
D)71.43%.
E)50.00%.

Question 65

Boot Corporation is subject to income tax in States A and B.Boot's operations generated $1,200,000 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)($450,000).
B)($71,640).
C)$71,640.
D)$450,000.

Question 66

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

A)All in A.
B)In none of the states, under the doctrine of indeterminate destination.
C)In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
D)One-half in A, with the balance exempted from other states' sales factors under the Colgate doctrine.

Question 67

Corolla 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.
Corolla'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.

Corolla's apportionable income assigned to B is:

A)$611,100.
B)$600,000.
C)$500,000.
D)$458,300.
E)$444,400.

Question 68

A taxpayer wishing to reduce the negative tax effects of the application of the unitary theory might:

A)affiliate with a service division, like one in marketing.
B)add a profitable entity to the unitary group.
C)disengage unitary operations with the most profitable affiliates.
D)a and c
E)All of the above.

Question 69

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

A)$800,000.
B)$700,000.
C)$600,000.
D)$500,000.
E)$200,000.

Question 70

Tripp 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.
Tripp'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.

Tripp's apportionable income assigned to C is:

A)$1,000,000.
B)$430,542.
C)$333,333.
D)$200,000.
E)$0.

Question 71

State A does not apply a throwback rule.General Corporation is taxable in a number of states and 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.In which state(s)will the sale be included in the sales factor?

A)All in A.
B)All in B.
C)In none of the states.
D)In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.

Question 72

The throwback rule requires that:

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

Question 73

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 property factor for State O is:

A)41.25%.
B)44.44%.
C)45.0%.
D)48.53%.
E)51.47%.

Question 74

When the taxpayer has exposure to a capital stock tax:

A)Expansions should be funded with retained earnings.
B)Subsidiary operations should be funded through direct capital contributions.
C)Dividends should be paid regularly to a parent based in a low-tax state.
D)Cost of sales should reflect no more than inflation increases.
E)None of the above is true.

Question 75

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)0%.
B)21.05%.
C)28.57%.
D)50.00%.

Question 76

State B applies a throwback rule,but State A does not.General Corporation is taxable in a number of states and 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.In which state(s)will the sale be included in the sales factor numerator?

A)Only in A.
B)Only in B.
C)In both A and B, according to the apportionment formulas of each.
D)In neither state, under the doctrine of indeterminate destination.

Question 77

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)$422,200.
B)$333,333.
C)$322,200.
D)$316,500.
E)$300,000.

Question 78

Peete Corporation is subject to franchise tax in State Z.The tax is imposed at a rate of 2% 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 historical cost at the end of the taxable year.
Sixty percent of Peete's sales are attributable to Z,and $200,000 of the cost of Peete's tangible personal property is located in Z.
Determine the Z franchise tax payable by Peete this year,given the following end-of-the year balance sheet.

A)$8,000.
B)$4,800.
C)$3,280.
D)$2,050.

Question 79

State A applies a throwback rule,but State B does not.General Corporation is taxable in a number of states and 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.In which state(s)will the sale be included in the sales factor numerator?

A)Only in A.
B)Only in B.
C)In both A and B, according to the apportionment formulas of each.
D)In neither state, under the doctrine of indeterminate destination.

Question 80

Judy,a regional sales manager,has her office in State X.Her region includes several states,as indicated in the sales report below.Determine how much of Judy's $200,000 compensation is assigned to the payroll factor of State X.

A)$200,000.
B)$66,667.
C)$50,000.
D)$0.
E)Cannot be determined without more information.