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Exam 24: Multistate Corporate Taxation

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Question 1

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Match each of the following terms with the appropriate description, in the state income tax formul a. Apply the UDITPA rules in your responses. a.Addition modification b.Subtraction modification c.No modification -Federal depreciation deduction in excess of state amount.

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Question 2

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Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. a.More than solicitation, creates nexus b.Solicitation only, no nexus created -Operating a warehouse for inventory that is held in the state.

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The typical local property tax falls on both an investor's principal residence and her stock portfolio.

State Q wants to increase its income tax collections,but politically it would be unwise to raise taxes on in-state individuals or businesses.Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula.Q allocates nonbusiness income amounts. Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z.Chipper's activities establish nexus for income tax purposes only in Z,the state of its incorporation.Chipper's sales,payroll,and property among the states include the following. State X State Z Totals Sales $1,000,000 $2,000,000 $3,000,000 Property 200,000 2,300,000 2,500,000 Payroll 100,000 1,900,000 2,000,000 ​ X utilizes a sales-only factor in its three-factor apportionment formula.How much of Chipper's taxable income is apportioned to X?

Troy,an S corporation,is subject to tax only in State A.On Schedule K of its Federal Form 1120S,Troy reported ordinary income of $2,000,000 from its business,municipal bond interest of $150,000,taxable interest of $150,000,and charitable contributions of $300,000.A does not recognize S status,but it does follow the Federal provisions with respect to the determination of taxable income for a corporation.Determine Troy's A taxable income.

Overall tax liabilities typically ____________________ (increase/decrease) if the members of a unitary group begin to include affiliates that generate net operating losses.

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. State X State Z Totals Sales $1,000,000 $3,000,000 $4,000,000 Property 2,000,000 -0- 2,000,000 Payroll 1,000,000 -0- 1,000,000 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?

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. a.No change in apportionment factors b.Q apportionment factor increases c.Q apportionment factor decreases d.R apportionment factor increases e.R apportionment factor decreases f.S apportionment factor increases g.S apportionment factor decreases -Q adopts a sales-only apportionment formula.

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

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

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?

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

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.

Flint Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Flint's Federal taxable income is $750,000,which includes a $50,000 deduction for state income taxes.During the year,Flint received $10,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. ​ Flint's taxable income for X purposes is:

Valdez Corporation,a calendar-year taxpayer,owns property in States M and O.Both M and O require that the average value of assets be included in the property factor.M requires that the property be valued at its historical cost,and O requires that the property be included in the property factor at its net depreciated book value. Account Balances at Beginning of Year State M State O Totals Inventories $ 200,000 $300,000 $ 500,000 Building & machinery (cost) 700,000 300,000 1,000,000 Accumulated depreciation (150,000) (50,000) (200,000) Land 400,000 200,000 600,000 Totals $1,150,000 $750,000 $1,900,000 ​ Account Balances at Year-End State M State O Totals Inventories $ 400,000 $100,000 $ 500,000 Building & machinery (cost) 800,000 500,000 1,300,000 Accumulated depreciation (300,000) (100,000) (400,000) Land 400,000 200,000 600,000 Totals $1,300,000 $700,000 $2,000,000 Valdez's O property factor is:

Bert Corporation,a calendar-year taxpayer,owns property in States M and O.Both M and O require that the average value of assets be included in the property factor.M requires that the property be valued at its historical cost,and O requires that the property be included in the property factor at its net depreciated book value. Account Balances at Beginning of Year State M State O Totals Inventories $200,000 $300,000 $ 500,000 Building & machinery (cost) 700,000 300,000 1,000,000 Accumulated depreciation (150,000) (50,000) (200,000) Land 400,000 200,000 600,000 Totals $1,150,000 $750,000 $1,900,000 ​ Account Balances at Year-End State M State O Totals Inventories $ 400,000 $100,000 $ 500,000 Building & machinery (cost) 800,000 500,000 1,300,000 Accumulated depreciation (300,000) (100,000) (400,000) Land 400,000 200,000 600,000 Totals $1,300,000 $700,000 $2,000,000 Annual rent payments $ 50,000 $ 25,000 Bert's State M property factor is:

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.

Match each of the following terms with the appropriate description, in the state income tax formul a. Apply the UDITPA rules in your responses. a.Addition modification b.Subtraction modification c.No modification -Dividend income from P & G stock held.

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.