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Exam 16: Multi-State Corporate Taxations

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Question 81

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

A) As though it were a C corporation.
B) As though it were a unitary business.
C) As a flow-through entity, similar to its Federal income tax treatment.
D) LLCs typically are exempted from state income taxation.

E) A) and D)
F) B) and C)

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Question 82

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Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's "garage sale."

A) True
B) False

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Question 83

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A ____________________ tax is designed to complement the local sales tax structure, to prevent the consumer from making no- or low-tax purchases in another state, outside the U.S., or online, and then bringing the asset into the state.

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

Typically, a sales/use tax is applied to a retail sale of ____________________ property.

The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.

Ramirez Corporation is subject to income tax only in State A. Ramirez generated the following income and deductions. $\begin{array} { l r } \text { Federal taxable income } & \$ 500,000 \\\text { State A income tax expense } & 45,000 \\\text { Depreciation allowed for Federal tax purposes } & 300,000 \\\text { Depreciation allowed for state tax purposes } & 250,000\end{array}$ ? Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Ramirez's A taxable income is:

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.

Ting, a regional sales manager, works from her office in State W. Her region includes several states, as indicated in the sales report below. Determine how much of Ting's $300,000 compensation is assigned to the payroll factor of State W. $\begin{array}{lrr}\text { State } & \text { Sales Generated } & \text { Ting's Time Spent There } \\\mathrm{U} & \$ 1,000,000 & 15 \% \\\mathrm{~V} & 5,000,000 & 55 \% \\\mathrm{~W} & 4,000,000 & 30 \% \\\hline&\$10,000,000&100\%\end{array}$

The throwback rule requires that:

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.

Flip Corporation operates in two states, as indicated below. All goods are manufactured in State A. Determine the sales to be assigned to both states to be used in computing Flip's sales factor for the year. Both states follow the UDITPA and the MTC regulations in this regard. $\begin{array}{lrr}&\text { State A}&\text { State B}\\\text { Gross sales to purchasers in state } & \$ 420,000 & \$ 360,000 \\\text { Sales returns } & 9,000 & 11,000 \\\text { Discounts allowed } & 21,000 & 31,000 \\\text { Rental income } & 60,000 * & 25,000 * *\end{array}$ ? * Excess warehouse space, seasonal rental to a competitor. ** Land held for speculation.

Discuss how a multistate business divides up its corporate taxable income among the states in which it operates. Hint: use the terms allocation and apportionment in your comments.

A typical state taxable income addition modification is for the Federal income tax paid for the tax year.

In the apportionment formula, most states assign more than a one-third weight to the ____________________ factor.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Prescription drugs and medicines purchased by a consumer.

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:

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -Federal general business credit.

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 A applies a throwback rule, but State B does not. In which state(s) will the sale be included in the sales factor numerator?

By making a water's edge election, the multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S. and E.U. affiliates.