Question 1

Roughly five percent of all taxes paid by businesses in the U.S. are to state, local, and municipal jurisdictions.

Accepted Answer

The percentage of taxes paid by businesses to state, local, and municipal jurisdictions is typically higher than five percent, as these taxes include property taxes, sales taxes, and other local levies.

Question 2

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

Accepted Answer

State taxable income subtraction modifications typically do not include interest income earned from other states' bonds; instead, most states tax this income. Interest from a state's own bonds may be exempt, but interest from other states' bonds is usually taxable.

Question 3

All of the U.S. states use an apportionment formula based on the sales, property, and payroll factors.

Accepted Answer

While many states use an apportionment formula based on the sales, property, and payroll factors, not all states use this formula. For example, some states may only use the sales factor or may have a modified formula that takes into account other factors.

Question 4

Typically, sales/use taxes constitute about 20 percent of a state's annual tax collections.

Accepted Answer

The answer of Typically, sales/use taxes constitute about 20 percent...

Question 5

In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

Accepted Answer

This is generally true, although specific formulas and allocation methods may vary by state.

Question 6

All of the U.S. states have adopted a tax based on the net taxable income of corporations.

Accepted Answer

Not all U.S. states impose a tax based on the net taxable income of corporations. Some states, like Wyoming and South Dakota, do not have a corporate income tax.

Question 7

A service engineer spends 80% of her time maintaining the employer's productive business property, and 20% maintaining the employer's nonbusiness rental properties. This year, her compensation totaled $90,000. The payroll factor assigns $90,000 to the state in which the employer is based.

Accepted Answer

The question doesn't provide enough information to determine the state in which the employer is based, so it can't be determined if the payroll factor assigns $90,000 to that state.

Question 8

A typical U.S. state piggybacks its collections of the corporate income tax, by letting the Federal government collect and remit the corresponding tax to the state.

Accepted Answer

States independently administer and collect their own corporate income taxes, separate from the federal government. The IRS collects federal taxes, while state departments of revenue collect state taxes.

Question 9

State and local politicians tend to apply new and increased taxes to taxpayers who are nonresident visitors to the jurisdiction, such as a tax on auto rentals and hotel stays, because the taxpayer cannot vote to reelect (or oust) the lawmaker.

Accepted Answer

State and local politicians often target nonresident visitors for taxes because they cannot vote in the jurisdiction and therefore cannot influence the election of lawmakers.

Question 10

Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.

Accepted Answer

Property taxes are usually collected by local governments such as cities, counties, and school districts, and are based on the value of a property. State and federal governments do not directly collect property taxes, but may have regulations and laws that impact how local governments assess and collect property taxes.

Question 11

Under P.L. 86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Accepted Answer

P.L. 86-272 provides an exemption from state income taxes for businesses whose activities in the state are limited to the solicitation of orders for sales of tangible personal property, not stocks and bonds, which are considered intangible property.

Question 12

Typical indicators of income-tax nexus include the presence of customers in the state.

Accepted Answer

The answer of Typical indicators of income-tax nexus include the...

Question 13

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

Accepted Answer

Most states conform to the Federal tax code and begin their computation of corporate taxable income with an amount from the Federal income tax return.

Question 14

An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000. The payroll factor assigns $65,000 for this employee.

Accepted Answer

The payroll factor includes both the salary and the value of fringe benefits, so it would include both the $50,000 salary and the $15,000 fringe benefit package, resulting in a total of $65,000 for this employee.

Question 15

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

Accepted Answer

States that conform to Federal income tax rules can use the same tax forms, definitions, and regulations, which simplifies the tax filing process and helps ensure compliance with tax laws. Additionally, if a taxpayer makes a mistake on their Federal tax return, it can affect their state taxes as well. By conforming to Federal rules, states can reduce the likelihood of errors or discrepancies.

Question 16

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.

Accepted Answer

Double weighting the sales factor means giving more weight to sales made in the state when calculating the corporate income tax. This can decrease the tax burden on in-state taxpayers with higher sales within the state.

Question 17

Politicians frequently use tax credits and exemptions to create economic development incentives.

Accepted Answer

Tax credits and exemptions are often used by politicians to encourage businesses to invest in certain areas or industries, with the intention of spurring economic growth and job creation. These incentives may include reduced tax rates, tax breaks for investments in specific projects, or exemptions from certain taxes altogether.

Question 18

A state can levy an income tax on a business only if the business was incorporated in the state.

Accepted Answer

A state can levy an income tax on a business if it has nexus or a sufficient connection with the state, such as having a physical presence (office, store, warehouse) or conducting business activities within the state, regardless of whether the business was incorporated in the state or not.

Question 19

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

Accepted Answer

While tax considerations can be a factor in choosing a location for a new plant, there are many other factors to consider such as availability of resources, access to transportation, proximity to customers and suppliers, local regulations, and workforce availability.

Question 20

A typical state taxable income addition modification is for the state's NOL allowed the taxpayer for the tax year.

Accepted Answer

State taxable income addition modifications typically include items that are tax-exempt at the federal level but not at the state level, rather than adjustments for a state's Net Operating Loss (NOL) allowed for the taxpayer. NOL adjustments are usually subtraction modifications, if they differ from federal NOL calculations.

Quiz 24: Multistate Corporate Taxation