Deck 16: Multistate Corporate Taxation

Question 1

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

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

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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

Question 9

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 10

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

Question 11

A state or local tax on a corporation's income might be called a franchise tax or a business privilege tax.

Question 12

A typical state taxable income addition modification is the interest income from U.S.Treasury bonds.

Question 13

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 14

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

Question 15

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

Question 16

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

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

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

Question 19

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

Question 20

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

Question 21

A few states assess a state-level tax on an S corporation that operates in the state.

Question 22

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

Question 23

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

Question 24

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

Question 25

A service engineer spends 60% of her time maintaining the employer's productive business property and 40% maintaining the employer's nonbusiness rental properties.This year,her compensation totaled $90,000.The payroll factor assigns $54,000 to the state in which the employer is based.

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

Most states waive the collection of sales tax on medical equipment.

Question 32

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

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

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

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

Typically included in the sales/use tax base is the purchase of computer and cell phone equipment by a large consulting firm that is incorporated in the state.

Question 41

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

A)Sale of the rights associated with a patent used in the taxpayer's business.
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 42

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 43

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

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

Question 44

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 $1,000,000 net rental income and $2,000,000 income from manufacturing. Norman is incorporated in Y.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 .65 for X and .35 for Y.
Norman's income attributed to X is:

A)$0.
B)$1,000,000.
C)$1,300,000.
D)$2,000,000.
E)$3,000,000.

Question 45

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

Question 46

In most states,medical services are exempt from the sales/use tax base.

Question 47

Perez Corporation is subject to tax only in State
A)$400,000.

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:
B)$450,000.
C)$600,000.
D)$650,000.

Question 48

Federal taxable income is used as the starting point in computing the state's income tax base,but numerous state adjustments or modifications generally are required to:

A)Reflect differences between state and Federal tax statutes.
B)Remove income that a state is constitutionally prohibited from taxing.
C)Allow for all of the states to use the same definition of taxable income.
D)a.and b.

Question 49

Kurt Corporation realized $900,000 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.Kurt is incorporated in X.How much of Kurt's taxable income is apportioned to Z?

A)$0.
B)$150,000.
C)$900,000.
D)$2,000,000.

Question 50

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 51

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 52

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

Question 53

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

Question 54

Bulky Company sold an asset on the first day of the tax year for $500,000.Bulky'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 $375,000.What adjustment,if any,should be made to Bulky's Federal taxable income in determining the correct taxable income for the typical state?

A)$75,000.
B)$25,000.
C)($75,000).
D)$0.

Question 55

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

Question 56

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

Question 57

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 58

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 59

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

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

Question 60

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 61

Simpkin Corporation owns manufacturing facilities in States A,B,and

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

Question 62

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 63

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 64

Cruz Corporation owns manufacturing facilities in States A,B,and

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

Question 65

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)$600,000.
B)$120,000.
C)$80,000.
D)$0.

Question 66

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

A)Affiliate with a service division that shows an operating loss,like one in research and development.
B)Acquire a unitary affiliate in a country with a high wage structure.
C)Add a profitable entity to the unitary group.
D)a.and b.

Question 67

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 68

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

A)$0.
B)$333,333.
C)$543,333.
D)$1,000,000.

Question 69

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 70

Helene Corporation owns manufacturing facilities in States A,B,and

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

Question 71

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 72

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 73

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)$79,800.
B)$300,000.
C)$520,200.
D)$600,000.

Question 74

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

Question 75

When the taxpayer has exposure to a capital stock tax:

A)The pricing of inventory sales should reflect no more than inflation increases.
B)Subsidiary operations should be funded through direct capital contributions.
C)Expansions should be funded with retained earnings.
D)Dividends should be paid regularly to a parent based in a low-tax state.

Question 76

A state sales tax usually falls upon:

A)Sales of groceries.
B)Sales of widgets made to out-of-state customers.
C)Sales of widgets made to the ultimate consumer of the product or service.
D)Sales of real estate.

Question 77

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 78

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)$0.
B)$66,667.
C)$80,000.
D)$200,000.

Question 79

In most states,a limited liability company (LLC)is subject to the state income tax:

A)As a flow-through entity,similar to its Federal income tax treatment.
B)As though it were a unitary business.
C)As though it were a C corporation.
D)LLCs typically are exempted from state income taxation.

Question 80

Boot Corporation is subject to income tax in States A and

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