Question 1

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, grants Congress the power to regulate commerce among states and prohibits state governments from using taxes or regulations to discriminate against interstate commerce.

Question 2

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

This statement is true. The commerce clause of the U.S. Constitution gives Congress the power to regulate interstate commerce, which includes prohibiting states from discriminating against out-of-state businesses. Therefore, a state imposing a higher tax on gasoline sold to trucks with out-of-state license plates would likely be considered discriminatory and therefore unconstitutional.

Question 3

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 due to deduction of state tax = (35% x $20,000) = $7,000
After-tax cost of state tax = $20,000 - $7,000 = $13,000. Therefore, the statement is true.

Question 4

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 5

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

Accepted Answer

While most states use a similar formula for apportioning income tax, some states have their own unique formula or use a modified version of the standard formula.

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 Luttrix will reduce state taxes by constructing a new manufacturing plant in Colorado.

Question 7

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 8

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 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

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 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

Increasing employee compensation in Alabama would reduce the company's taxable income in Georgia, which has a higher tax rate. Therefore, overall state taxes would be reduced.

Question 12

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

Accepted Answer

While the federal government does impose taxes on corporations, state governments also have the authority to impose taxes on corporations operating within their state boundaries.

Question 13

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 prohibits a state from imposing taxes on out-of-state businesses whose only activities in the state are the solicitation of orders for the sale of tangible personal property, as long as those orders are shipped from outside the state. This law protects businesses from having to comply with varying state tax laws and regulations, and is still in effect today.

Question 14

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 net cost of state taxes because the deduction reduces the taxpayer's taxable income, resulting in a lower federal tax liability.

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

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 17

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 18

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 an exemption for certain activities, such as solicitation of orders for tangible personal property, that do not create nexus for state income tax purposes. This means that non-resident firms selling tangible goods to in-state residents can use this exemption to avoid having income tax nexus in a state.

Question 19

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 20

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 only wages and salaries paid to employees, not executive compensation. Executive compensation is typically included in the numerator of the formula as part of the state's sales factor or property factor, depending on the specific state's apportionment rules.

Quiz 13: Jurisdictional Issues in Business Taxation