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Exam 16: Multistate Corporate Taxation

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Question 51

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

A) True
B) False

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Question 52

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Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B. For the taxable year, the corporation's activities within the two states were as follows: $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Total } \\\text { Sales } & \$ 500,000 & \$ 1,500,000 & \$ 2,000,000 \\\text { Property } & 250,000 & - 0 - & 250,000 \\\text { Payroll } & 200,000 & 300,000 & 500,000\end{array}$ Dott has determined that it is subject to tax in both A and B. Both states utilize a three-factor apportionment formula that equally weights sales, property, and payroll. The rates of corporate income tax imposed in States A and B are 7% and 10%, respectively. Determine Dott's total state income tax liability.

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State A Income Tax Liability
Taxable inc...

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Question 53

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The use tax is designed to complement the sales tax. A use tax typically covers purchases made out of state and brought into the jurisdiction.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A garment purchased by an employee for wear at an office job.

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.

S corporations flow through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

Match each of the following terms with the appropriate description in the state income tax formula. Apply the UDITPA rules in your responses. -Deduction for advertising expenditures.

When the taxpayer has exposure to a capital stock tax:

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

The throwback rule requires that:

Provide the required information for Orange Corporation whose Federal taxable income totals $100 million. Orange apportions 70% of its business income to State C. Orange generates $10 million of nonbusiness income each year. Of that income, 40% is attributable to rentals of buildings located in C. Orange's business income this year totals $90 million. a. State C taxes how much of Orange's business income? b. State C taxes how much of Orange's nonbusiness income? c. Explain your results.

The typical state sales/use tax falls on sales of both real and personal property.

Almost all of the states assess some form of consumer-level sales/use tax.

Typically, sales/use taxes constitute about 20% of a state's annual tax collections for most states.

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.

You are completing the State A income tax return for Quaint Company, LLC. Quaint operates in various states with the following results: $\begin{array}{lc}\text { Ordinary income } & \$ 800,000 \\\text { Net capital loss } & 60,000) \\\text { Interest income, IBM bond } & 40,000\end{array}$ In State A, all interest is treated as apportionable income. State A uses a sales-only apportionment factor. Compute Quaint's State A taxable income. $\begin{array} {l r r r } &\text { State A } & \text { All Other States } & \text { Total } \\ \text {Sales }&\$ 800,000 & \$ 1,200,000 & \$ 2,000,000 \\ \text {Property average cost) }&250,000 & 2,000,000 & 2,250,000 \\ \text {Payroll }&300,000 & 700,000 & 1,000,000\end{array}$

Which of the following is not immune from state income taxation even if P.L. 86-272 is in effect?

State Q has adopted sales-factor-only apportionment for its corporate income tax. As a result, a__________larger/smaller) percentage of an out-of-state corporation's income is assigned to tax in the state.

Under Public Law 86-272, a state is prohibited from income taxing the income of 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.

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