Question 1

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

False

Question 2

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.

Question 3

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

Article 1 of the U.S. Constitution, also known as the Commerce Clause, prohibits state governments from using a tax to discriminate against interstate commerce. This is based on the principle of promoting a unified and fair economic system across the country.

Question 4

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 of the U.S. Constitution prohibits states from discriminating against interstate commerce, including imposing taxes on out-of-state entities. Therefore, a state cannot charge an extra tax on gasoline sold to trucks with out-of-state license plates.

Question 5

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

Accepted Answer

International tax treaties typically allow governments to tax non-resident firms that have a permanent establishment or residence in the treaty country. This is often defined as a fixed place of business through which the company carries out its operations, such as a branch office or factory. The treaty may also specify what types of income are subject to taxation in the treaty country.

Question 6

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 7

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 8

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 9

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

Accepted Answer

When taxpayers itemize their deductions on their federal income tax returns, they are allowed to deduct the amount of state income taxes they paid during the tax year. This deduction reduces the taxpayer's taxable income, which in turn reduces the amount of federal income tax they owe. Therefore, the deduction for state income taxes paid can decrease the cost of the state taxes.

Question 10

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 state tax rate compared to Nebraska, so constructing a new manufacturing plant in Colorado will result in lower state taxes for Luttrix Inc.

Question 11

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 provides a safe harbor provision that prohibits states from imposing income tax on out-of-state businesses whose only activities in the state are limited to the solicitation of orders for the sale of tangible personal property, provided that the orders are approved and shipped from outside the state. This means that the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Question 12

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

Accepted Answer

While all states with an income tax use some variation of apportionment to determine how much tax an individual owes based on their income earned in that state, each state may use a different formula or method for calculating it.

Question 13

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 state tax is calculated by subtracting the tax savings from the federal income tax deduction. In this case, the tax savings would be 35% of $20,000, which is $7,000. Therefore, the after-tax cost of the state tax would be $20,000 - $7,000 = $13,000.

Question 14

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 15

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 16

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 17

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 establishes a safe harbor for non-resident firms selling tangible goods to in-state residents, allowing them to avoid having income tax nexus in a state.

Question 18

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

Since Alabama has a lower tax rate than Georgia, increasing employee compensation in Alabama would result in higher deductions for the company on its Alabama state tax return and lower deductions on its Georgia state tax return, resulting in reduced state taxes overall.

Question 19

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 20

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

Accepted Answer

This is correct. The sales factor in the UDITPA state income tax apportionment formula is calculated by taking in-state sales and dividing it by the total sales of the company.

Quiz 13: Jurisdictional Issues in Business Taxation