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Exam 16: Multistate Corporate Taxation

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Question 21

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Although apportionment formulas vary among jurisdictions, most states use the same three factors in the formula.The factors are____________________,____________________, and ____________________.

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sales, property, pay...

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Question 22

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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: $\begin{array} { l r r r } & \text { State X } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,500,000 & \$ 1,000,000 & \$ 2,500,000 \\\text { Property } & 500,000 & - 0 - & 500,000 \\\text { Payroll } & 2,000,000 & - 0 - & 2,000,000\end{array}$ Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

A) $1,000,000
B) $900,000
C) $180,000
D) $0

E) C) and D)
F) None of the above

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Question 23

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Kim Corporation, a calendar year taxpayer, has manufacturing facilities in States A and B. A summary of Kim's property holdings follows: $\text { End of Year }$ $\begin{array}{rrr}&\text { State A } & \text { State B } & \text { Total } \\\text { Inventory }&\$ 400,000 & \$ 100,000 & \$ 500,000\end{array}$ *Unrelated to Kim's regular business and operations. Determine Kim's property factors for the two states. State A's statutes provide that the average historical cost of business property is to be included in the property factor. State B's statutes provide that the property factor is based on the average depreciated basis of in-state business property.

Ramirez Corporation, which is subject to income tax only in State A, generated the following income and deductions: $\begin{array}{lr}\text { Federal taxable income } & \$ 500,000 \\\text { State A income tax expense } & 45,000 \\\text { Depreciation allowed for Federal tax purposes } & 300,000 \\\text { Depreciation allowed for state tax purposes } & 250,000\end{array}$ 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:

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

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

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

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: $\begin{array} { l c c c } & \text { State } X & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,000,000 & \$ 3,000,000 & \$ 4,000,000 \\\text { Property } & 2,000,000 & - 0 - & 2,000,000 \\\text { Payroll } & 1,000,000 & - 0 - & 1,000,000\end{array}$ 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?

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

When a _________________________ rule is in effect, out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.

Hambone Corporation is subject to the State E capital stock tax. The tax is levied at 2% of the entity's net worth that is apportioned to State E. Hambone conducts 30% of its operations in State E. Hambone's current book balance sheet is as follows with amounts in millions. Compute Hambone's liability for the State E capital stock tax.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -Computer equipment purchased by a charity.

Public Law 86-272:

Most states exempt consumer purchases of groceries from the collection of the local sales tax.

In conducting multistate tax planning, the taxpayer should:

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

Valdez Corporation, a calendar year taxpayer, owns property in States M and O. Both states require that the average value of assets be included in the property factor. State M requires that the property be valued at its historical cost, and State O requires that the property be included in the property factor at its net depreciated book value. Valdez's O property factor is:

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

Hopper Corporation's property holdings in State E are as follows: Item Property Factor Valuation $M) Manufacturing equipment 100 Land held for potential appreciation 25 Manufacturing equipment that is not currently needed and sits idle 15 Manufacturing equipment that is not currently needed and is leased To another taxpayer 20 Compute the numerator of Hopper's E property factor.

Roughly 5% of all taxes paid by businesses in the United States are to state, local, and municipal jurisdictions.