Question 1

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

Accepted Answer

Not all U.S. states have adopted a tax based on the net taxable income of corporations. For example, some states like Nevada, South Dakota, and Wyoming do not impose a corporate income tax at all.

Question 2

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

Accepted Answer

State taxable income subtraction modifications typically allow for the exclusion of interest income earned on bonds issued by that state or its municipalities, not bonds issued by other states.

Question 3

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

Accepted Answer

While tax considerations may be a factor in a business's decision to choose a location for a new plant, other factors such as access to raw materials, availability of skilled labor, transportation infrastructure, proximity to markets, and local regulations also play a significant role in the decision-making process.

Question 4

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

Accepted Answer

The answer of Typical indicators of income tax nexus include...

Question 5

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

Accepted Answer

This statement is true. Nonresident visitors to a jurisdiction are not able to vote for or against politicians who apply new and increased taxes, which makes them a popular target for such taxes.

Question 6

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.

Accepted Answer

States independently administer and collect their own corporate income taxes, separate from the federal government's collection of federal corporate income taxes.

Question 7

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

Accepted Answer

A state can levy an income tax on a business if the business has a significant connection to the state, such as having employees or conducting business activities within the state. Incorporation is not the only criteria for a state to levy income tax on a business.

Question 8

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.

Accepted Answer

P.L. 86-272 provides an exemption from state income taxes for businesses whose activities in the state are limited to the solicitation of orders for sales of tangible personal property, where the orders are sent outside the state for approval and fulfillment. It does not apply to the sale of stocks and bonds, which are considered intangible property.

Question 9

A typical state taxable income addition modification is for the state's NOL allowed the taxpayer for the tax year.

Accepted Answer

State taxable income addition modifications typically include items that are tax-exempt at the federal level but not at the state level, rather than adjustments for a state's Net Operating Loss (NOL) allowed for the taxpayer. The treatment of NOLs usually involves specific rules for carryover and carryback periods that differ from federal rules, rather than simple additions to taxable income.

Question 10

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.

Accepted Answer

The payroll factor takes into account both the salary and fringe benefits received by an employee, so in this case the payroll factor would be $65,000 ($50,000 + $15,000).

Question 11

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.

Accepted Answer

Most states use an apportionment formula to determine how much of a taxpayer's income should be allocated to that state, based on the extent of their business contact with the state. The allocation is then based on the location of property owned or used within the state.

Question 12

Roughly 5% of all taxes paid by businesses in the United States are to state, local, and municipal jurisdictions.

Accepted Answer

The percentage of taxes paid by businesses to state, local, and municipal jurisdictions in the United States is significantly higher than 5%. These taxes include property taxes, sales taxes, state income taxes, and various local taxes, making up a substantial portion of the tax burden for businesses.

Question 13

Typically, sales/use taxes constitute about 20% of a state's annual tax collections for most states.

Accepted Answer

Sales/use taxes typically make up a significant portion of a state's annual tax collections, but the percentage can vary widely among states. For many states, the percentage is less than 20%, especially when considering the contributions from income taxes, property taxes, and other sources of revenue. The exact percentage depends on the state's tax structure and its reliance on sales/use taxes versus other forms of taxation.

Question 14

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

Accepted Answer

Not all U.S. states use the three-factor apportionment formula (sales, property, and payroll); some states use a single sales factor formula or other variations for corporate income tax apportionment.

Question 15

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

Accepted Answer

Property taxes are collected by local taxing jurisdictions such as cities, counties, school districts, and special taxing districts. The money collected is used to fund local services and infrastructure. State and Federal governments do not typically collect property taxes directly.

Question 16

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

Accepted Answer

Tax credits and exemptions are common tools used by politicians to encourage businesses to invest in certain areas or industries, create jobs, or purchase certain types of equipment. These incentives are designed to stimulate economic growth and development.

Question 17

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.

Accepted Answer

The payroll factor should only assign the proportion of the compensation that corresponds to the time spent maintaining the employer's productive business property to the state in which the employer is based. Since the engineer spends 80% of her time on business property, only $72,000 (80% of $90,000) should be assigned to that state, not the full $90,000.

Question 18

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

Accepted Answer

Double weighting the sales factor, which means giving it more weight in the corporate income tax formula, benefits entities with higher sales in the state where they have their headquarters. This effectively decreases their corporate income tax burden in that state.

Question 19

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

Accepted Answer

Most states use federal taxable income as a starting point for computing corporate taxable income, although they may make certain adjustments or add state-specific deductions.

Question 20

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

Accepted Answer

This is because the state can rely on the federal government's infrastructure, such as the Internal Revenue Service (IRS), to collect and enforce income taxes. Additionally, taxpayers are already familiar with federal tax rules, so it leads to less confusion and errors when filing their state taxes.

Quiz 16: Multistate Corporate Taxation