Question 1

All states employ some combination of sales and use tax, income or franchise tax, or property tax to fund their government operations.

Accepted Answer

This statement is true. All states in the United States rely on some combination of sales and use tax, income or franchise tax, or property tax to generate revenue for their government operations.

Question 2

Failure to collect and remit sales taxes by a seller often results in a larger tax liability than failure to pay income taxes.

Accepted Answer

Sales taxes are collected on behalf of the government and failure to collect or remit them can result in penalties and interest charges that quickly add up, often resulting in a larger tax liability than failure to pay income taxes.

Question 3

The National Bellas Hess decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence.

Accepted Answer

The National Bellas Hess decision in 1967 held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence in the state. This decision was later overturned by the Supreme Court in 2018 with the South Dakota v. Wayfair, Inc. decision which allowed states to require sales tax collection even if the company did not have physical presence in the state.

Question 4

The state tax base is computed by making adjustments to federal taxable income.

Accepted Answer

Most states use federal taxable income as a starting point for computing state income tax liability, but then make adjustments to conform to state-specific tax laws and policies. This results in the state tax base.

Question 5

Many states are either starting to or are in the process of expanding the types of services subject to sales tax.

Accepted Answer

Many states have indeed expanded the types of services subject to sales tax in order to increase revenue. Examples include taxing digital products and services, janitorial services, and ride-sharing services.

Question 6

State tax law is comprised solely of legislative authority.

Accepted Answer

Like federal tax law, state tax law includes legislative, administrative, and judicial law.

Question 7

Use tax liability accrues in the state where purchased property will be used when the seller of the property is not required to collect sales tax.

Accepted Answer

If the seller is not required to collect sales tax, it is the responsibility of the purchaser to pay the use tax in the state where the property will be used. The use tax is based on the purchase price of the property and is typically the same rate as the sales tax in that state.

Question 8

Commercial domicile is the location where a business is headquartered and from whence it directs its operations.

Accepted Answer

Commercial domicile is the legal term for a company's official address or headquarters. It is the location where the management team makes strategic decisions and directs the overall direction of the business.

Question 9

The Quill decision reaffirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

Accepted Answer

The Quill decision, made by the US Supreme Court in 1992, established the physical presence standard, stating that a business must have a physical presence within a state before that state can require the collection of sales taxes from in-state customers. This decision was reaffirmed in subsequent court cases, including South Dakota v. Wayfair in 2018.

Question 10

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

Nondomiciliary businesses are only subject to tax where they have sales tax nexus or income tax nexus.

Question 11

Wyoming imposes an income tax on corporations.

Accepted Answer

Wyoming does not impose an income tax on corporations.

Question 12

Businesses subject to income tax in more than one jurisdiction have the right to apportionment.

Accepted Answer

Businesses subject to income tax in more than one jurisdiction have the right to apportionment, which allows them to divide their taxable income based on certain factors such as sales, payroll, and property value allocated to each jurisdiction. This helps to avoid double taxation and ensures a fair distribution of tax liabilities.

Question 13

Business income is allocated to the state of commercial domicile.

Accepted Answer

Business income is apportioned based on the extent of business's activity and property in various states. Nonbusiness income is allocated directly to the business's state of commercial domicile.

Question 14

All 50 states impose a sales and use tax system.

Accepted Answer

Alaska, Delaware, Montana, New Hampshire, and Oregon do not.

Question 15

Businesses engaged in interstate commerce are subject to income tax in every state in which they operate.

Accepted Answer

Businesses engaged in interstate commerce are only subject to tax where they have nexus.

Question 16

Physical presence does not always create sales tax nexus.

Accepted Answer

Under the Quill doctrine, physical presence always creates sales tax nexus.

Question 17

Purchases of inventory for resale are typically exempt from sales and use taxes.

Accepted Answer

Purchases of inventory for resale are usually exempt from sales and use taxes because they are considered to be part of a sales transaction and will be subject to tax when the final customer purchases the item.

Question 18

The primary purpose of state and local taxes is to raise revenue to finance state and local government.

Accepted Answer

The primary purpose of state and local taxes is to generate revenue to finance state and local government expenses.

Question 19

Businesses must collect sales tax only in states where it has sales tax nexus.

Accepted Answer

Sales tax nexus is the connection between a business and a state that requires the business to collect and remit sales tax on transactions in that state. If a business doesn't have sales tax nexus in a state, it is not required to collect sales tax in that state. Therefore, businesses must collect sales tax only in states where it has sales tax nexus.

Question 20

The sales and use tax base varies from state to state.

Accepted Answer

The sales and use tax base is determined by each individual state's laws and regulations, so it varies from state to state. Some states may have exemptions for certain products or services, while others may not. The tax rates also differ between states.

Quiz 12: State and Local Taxes