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Exam 16: Multi-State Corporate Taxations

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Question 41

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The property factor includes land and buildings used for business purposes.

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B) False

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Question 42

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

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Question 43

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Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.

Most of the U.S. states have adopted an alternative minimum tax, similar to the Federal system, in taxing the income of corporations.

Marquardt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Marquardt's activities establish nexus for income tax purposes in both states. Marquardt's sales, payroll, and property among the states include the following. $\begin{array}{ccc}&\text { StateX } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,000,000 & \$ 3,000,000 & \$ 4,000,000 \\\text { Property } & 2,000,000 & -0- & 2,000,000 \\\text { Payroll } & 1,000,000 & -0- & 1,000,000\end{array}$ Z utilizes an equally weighted three-factor apportionment formula. Marquardt is incorporated in X. How much of Marquardt's taxable income is apportioned to Z?

Pail Corporation is a merchandiser. It purchases overstock garments from various suppliers and sells the goods in its State L retail store. Determine the total sales that are subject to the L sales tax. $\begin{array} { l r } \text {Sales to L residents }&\$600,000\\\text { Sales to homeless shel ter operated by a local church } & 80,000 \\\text { Sales to residents who cross the border from nearby State M } & 100,000 \\\text { Sales to a similar merchandiser, located in another L town } & 20,000\end{array}$

A taxpayer has nexus with a state for sales and use tax purposes if it has a physical presence in the state.

Net Corporation's sales office and manufacturing plant are located in State X. Net also maintains a manufacturing plant and sales office in State W. For purposes of apportionment, X defines payroll as all compensation paid to employees, including contributions to § 401(k) deferred compensation plans. Under the statutes of W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Net incurred the following personnel costs. $\begin{array}{lrrr}&\text { State } \mathrm{X} & \text { State } \mathrm{W} & \text { Totals }\\\text { Wages and salaryes for employees other } & \$ 500,000 & \$ 300,000 & \$ 800,000 \\\text { hhan officers } \\\text { Salaries for officers } & 300,000 & 150,000 & 450,000 \\\text { Contributions to } \S 401(\mathrm{k}) \text { plans }& 200,000 & 50,000 & 250,000\\ \text { Totals } & \mathbf{\$ 1 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} & \mathbf{\$ 1 , 5 0 0 , 0 0 0} \end{array}$ Net's payroll factor for State W is:

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.

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

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -Treasury Bond interest income.

Several states allow the S corporation to file a(n) ____________________ income tax return, usually in the form of a state-by-state spreadsheet, on behalf of its out-of-state shareholders.

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

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. $\begin{array} { l r r r } & \text { StateX } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,500,000 & \$ 1,000,000 & \$ 2,500,000 \\\text { Property } & 500,000 & - 0 - & 500,000 \\\text { Payroll } & 2,000,000 & - 0 - & 2,000,000\end{array}$ ? X utilizes an equally weighted three-factor apportionment formula. How much of José's taxable income is apportioned to X?

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?

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -Dividend income from P & G stock held.

Identify some state/local income tax issues facing pass-through entities such as S corporations, partnerships, and LLCs.

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

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a customer in B. This activity is not sufficient for General to create nexus with B. State B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator?

Match each of the following events, considered independently, to its likely effect on WillCo's various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S. More than one choice may be correct. -Q adopts a throwback rule.