Question 1

Hopper Corporation's property holdings in State E are as follows.  Compute the numerator of Hopper's E property factor.

Accepted Answer

The answer of Hopper Corporation's property holdings in State E...

Question 2

Parent Corporation owns all of the stock of Junior Corporation, a Delaware passive investment company. Parent operates strictly in nonunitary State B, which levies a 9% income tax. This year, Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent. In which state(s) will the interest income create an income tax liability?

Accepted Answer

The answer of Parent Corporation owns all of the stock...

Question 3

P.L. 86-272 (does/does not) create nexus when the sales representative approves a sale at the customer's location.

Accepted Answer

The answer of P.L. 86-272 (does/does not) create nexus when...

Question 4

A state sales tax usually falls upon:

Accepted Answer

The answer of A state sales tax usually falls upon:
...

Question 5

In determining taxable income for state income tax purposes, interest income from Federal bonds typically constitutes a(n) modification.

Accepted Answer

The answer of In determining taxable income for state income...

Question 6

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Accepted Answer

All three options are effective income-shifting techniques for a non-unitary group. Option A involves Parent charging Minor a management fee, which would create a deductible expense for Minor and income for Parent. Option B involves shifting high-cost operations from Parent to Minor, which would reduce Parent's taxable income and increase Minor's taxable income. Option C involves an intercompany loan, with Minor paying deductible interest to Parent, reducing Minor's taxable income and increasing Parent's taxable income. By using a combination of these techniques, the group can significantly reduce their overall tax liability.

Question 7

When the taxpayer has exposure to a capital stock tax:

Accepted Answer

The answer of When the taxpayer has exposure to a...

Question 8

The starting point in computing state taxable income generally is .

Accepted Answer

The answer of The starting point in computing state taxable...

Question 9

In most states, a limited liability company (LLC) is subject to the state income tax:

Accepted Answer

LLCs are typically treated as pass-through entities for federal income tax purposes, meaning that the company does not pay federal income tax itself, but instead passes its profits and losses through to its individual owners, who report them on their personal tax returns. Most states also treat LLCs as pass-through entities for state income tax purposes, meaning that the LLC itself does not pay state income tax, but instead passes its profits and losses through to its individual owners, who report them on their personal state tax returns.

Question 10

describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out­of­state entity's income.

Accepted Answer

The answer of describe(s) the degree of business activity that...

Question 11

Under Public Law 86-272, a state is prohibited from taxing a business if the only connection with the state is the
of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

Accepted Answer

The answer of Under Public Law 86-272, a state is...

Question 12

When the taxpayer operates in one or more unitary states:

Accepted Answer

All of the above are true.
A) Apportionment factors are computed on a group-wide basis: This means that instead of calculating apportionment factors separately for each state, it is done on a combined basis for all unitary states. This can have implications on the tax liability of the taxpayer, as the formula used for apportionment may be different in each state.
B) The tax incentive of creating nexus in a low-tax state is enhanced: Nexus refers to the amount of presence that a taxpayer has in a state, which can determine whether they are subject to that state's taxes. In unitary states, creating nexus in a low-tax state can be beneficial as it would reduce the overall tax liability of the taxpayer.
C) The tax benefit of a passive investment subsidiary holding company is neutralized: A holding company is an entity that owns shares in other companies, which can provide benefits such as reduced tax liability if structured correctly. However, in unitary states, the tax benefits of such structures may be reduced as the overall tax liability is calculated on a group-wide basis.
D) The use of a water's edge election should be considered: A water's edge election is a tax calculation method that allows multinational companies to exclude certain foreign income from their tax liability. In unitary states, this may be an option to consider for reducing the overall tax liability.

Question 13

In conducting multistate tax planning, the taxpayer should:

Accepted Answer

In conducting multistate tax planning, the taxpayer should review tax opportunities in light of their effect on the overall business, exploit inconsistencies among the taxing statutes and formulas of the states, and consider the tax effects of the plan after accounting for any new compliance and administrative costs that it generates. All of the choices are true and necessary for effective multistate tax planning.

Question 14

Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Accepted Answer

The answer of Parent and Junior form a unitary group...

Question 15

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

Accepted Answer

The answer of Hendricks Corporation sells widgets in two states....

Question 16

A use tax applies when a State A resident purchases:

Accepted Answer

The answer of A use tax applies when a State...

Question 17

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) modification.

Accepted Answer

The answer of In determining taxable income for state income...

Question 18

The benefits of a passive investment company typically include:

Accepted Answer

All of the options listed are benefits of a passive investment company. By being a passive investment company, the entity's portfolio income can be isolated from taxation in other nonunitary states, reducing state income taxes. In addition, the subsidiary's portfolio income can be excluded from the parent corporation's apportionment formula denominator in other nonunitary states. These benefits make a passive investment company an attractive option for those looking to invest or manage assets in multiple states.

Question 19

For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

Accepted Answer

Sales (gross receipts) typically yield the greatest opportunities for tax reduction because it allows companies to allocate more of their income to states with lower tax rates. This is particularly true for companies that have most of their sales in states with high tax rates but relatively little property or payroll. By shifting sales to states with lower tax rates, companies can reduce their overall tax liability.

Question 20

A state sales tax usually falls upon:

Accepted Answer

A state sales tax typically falls on the final sale of goods and services to the end consumer, which is represented by choice C. Sales of groceries are often exempt from sales tax in many states. Sales of widgets made to out-of-state customers would not be subject to state sales tax, but may be subject to other taxes or fees. Sales of real estate are typically subject to a separate real estate transfer tax, not a sales tax.

Quiz 16: Multistate Corporate Taxation

Hopper Corporation's property holdings in State E are as follows. Compute the numerator of Hopper's E property factor.

P.L. 86-272 (does/does not) create nexus when the sales representative approves a sale at the customer's location.

A state sales tax usually falls upon:

In determining taxable income for state income tax purposes, interest income from Federal bonds typically constitutes a(n) modification.

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

When the taxpayer has exposure to a capital stock tax:

The starting point in computing state taxable income generally is .

In most states, a limited liability company (LLC) is subject to the state income tax:

describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an outofstate entity's income.

Under Public Law 86-272, a state is prohibited from taxing a business if the only connection with the state is the of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

When the taxpayer operates in one or more unitary states:

In conducting multistate tax planning, the taxpayer should:

Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

A use tax applies when a State A resident purchases:

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) modification.

The benefits of a passive investment company typically include:

For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

A state sales tax usually falls upon:

Quiz 16: Multistate Corporate Taxation

Hopper Corporation's property holdings in State E are as follows. Compute the numerator of Hopper's E property factor.

P.L. 86-272 (does/does not) create nexus when the sales representative approves a sale at the customer's location.

A state sales tax usually falls upon:

In determining taxable income for state income tax purposes, interest income from Federal bonds typically constitutes a(n) modification.

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

When the taxpayer has exposure to a capital stock tax:

The starting point in computing state taxable income generally is .

In most states, a limited liability company (LLC) is subject to the state income tax:

describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out­of­state entity's income.

Under Public Law 86-272, a state is prohibited from taxing a business if the only connection with the state is the of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

When the taxpayer operates in one or more unitary states:

In conducting multistate tax planning, the taxpayer should:

Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

A use tax applies when a State A resident purchases:

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) modification.

The benefits of a passive investment company typically include:

For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

A state sales tax usually falls upon:

describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an outofstate entity's income.