Question 1

The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.

Accepted Answer

The federal income tax deduction for state income taxes paid reduces the taxpayer's overall tax liability, effectively lowering the cost of the state taxes.

Question 2

All states assessing an income tax use the same formula for apportionment purposes.

Accepted Answer

States have different methods for apportioning income tax, which determines how much income tax each state can collect from a multistate business. Common methods include the three-factor formula, double-weighted sales formula, and single-sales factor formula.

Question 3

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

Accepted Answer

The payroll factor in the UDITPA state income tax apportionment formula includes all compensation paid to employees, not just executive compensation.

Question 4

If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

Accepted Answer

The answer of If Gamma Inc. is incorporated in Ohio...

Question 5

According to Public Law 86-272, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Accepted Answer

Public Law 86-272, also known as the Interstate Income Act, provides that a company's activities within a state are protected from certain state taxes if its only activity within that state is the solicitation of orders for sales of tangible personal property, provided that such orders are approved and shipped from outside the state.

Question 6

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado.

Accepted Answer

Colorado has a lower tax rate (3%) compared to Nebraska (6%), so building a manufacturing plant in Colorado would result in reduced state taxes for Luttrix Inc.

Question 7

Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%.

Accepted Answer

The question does not provide any information on the minimum apportionment percentage in the other state, so we cannot assume that it is less than or equal to 37%. Therefore, it is false to say that "its apportionment percentage in the other state can be no more than 37%."

Question 8

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

Accepted Answer

The answer of BiState Inc. conducts business in North Carolina...

Question 9

The UDITPA formula for apportioning income among states is based on four equally weighted factors.

Accepted Answer

The UDITPA (Uniform Division of Income for Tax Purposes Act) formula typically uses three equally weighted factors: property, payroll, and sales, to apportion income among states.

Question 10

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

Accepted Answer

P.L. 86-272 provides a safe harbor for non-resident firms that limits their state taxation to sales of tangible personal property in a state. If the firm only makes sales of tangible goods to in-state residents and does not have any other activities that go beyond solicitation, it is protected from state income taxes in that state.

Question 11

Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will reduce state taxes if it increases the compensation paid to its employees in Alabama.

Accepted Answer

This is because the 5% tax rate in Alabama is lower than the 6% tax rate in Georgia. Therefore, if the company increases compensation paid to employees in Alabama, a larger portion of its expenses will be subject to the lower tax rate, resulting in reduced state taxes.

Question 12

In the United States, corporations are subject only to taxes imposed by the federal government.

Accepted Answer

Corporations are subject to taxes imposed by both the federal government and state governments. Each state has the authority to impose its own corporate income tax.

Question 13

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Accepted Answer

The answer of A corporation is usually subject to tax...

Question 14

The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.

Accepted Answer

The UDITPA (Uniform Division of Income for Tax Purposes Act) formula for state income tax apportionment traditionally consists of three factors: sales, payroll, and property, not profit.

Question 15

The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.

Accepted Answer

The sales factor in the UDITPA state income tax apportionment formula is calculated by dividing in-state sales by total sales.

Question 16

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax, the after-tax cost of the state tax is $13,000.

Accepted Answer

The after-tax cost of the state tax can be calculated as follows:

State tax paid = $20,000
Federal tax savings = $20,000 x 35% = $7,000
After-tax cost of state tax = State tax paid - Federal tax savings = $20,000 - $7,000 = $13,000

Therefore, the statement is true.

Question 17

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Accepted Answer

The commerce clause in Article 1 of the U.S. Constitution gives Congress the power to regulate interstate commerce and prohibits states from passing laws that discriminate against or unduly burden interstate commerce. This includes charging extra taxes on goods or services based on out-of-state origin or ownership. Therefore, a state cannot charge an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Question 18

The sales factor in the UDITPA state income tax apportionment formula equals out-of-state sales divided by total sales.

Accepted Answer

The sales factor in the UDITPA (Uniform Division of Income for Tax Purposes Act) state income tax apportionment formula equals in-state sales divided by total sales.

Question 19

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Accepted Answer

Multi-state businesses can reduce their overall tax cost by shifting income from high-tax states to low-tax states, not the other way around.

Question 20

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

Accepted Answer

This is a true statement. The commerce clause of the U.S. Constitution grants Congress the power to regulate commerce between states and prohibits state governments from placing undue burdens on interstate commerce. This includes using taxes to discriminate against businesses that operate across state lines.

Quiz 13: Jurisdictional Issues in Business Taxation