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Exam 16: Multistate Corporate Taxation

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Question 21

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Typically exempt from the sales/use tax base is the purchase of lumber by a do-it-yourself homeowner,when she builds a deck onto her patio.

A) True
B) False

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Question 22

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Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

A) True
B) False

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Question 23

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A service engineer spends 60% of her time maintaining the employer's productive business property and 40% maintaining the employer's nonbusiness rental properties.This year,her compensation totaled $90,000.The payroll factor assigns $54,000 to the state in which the employer is based.

Your client,Hamlin Industries,wants to reduce its overall state/local income tax liability.Hamlin holds income-producing assets of various types,including tangible personal property,rental land and buildings,and high-yield stocks and bonds.You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time.What device might Hamlin use in a restructuring of its operations to achieve the desired tax result?

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

Federal taxable income is used as the starting point in computing the state's income tax base,but numerous state adjustments or modifications generally are required to:

You are completing the State A income tax return for Quaint Company,LLC.Quaint operates in various states,showing the following results. In A,all interest is treated as business income.A uses a sales-only apportionment factor.Compute Quaint's A taxable income.

Kim Corporation,a calendar year taxpayer,has manufacturing facilities in States A and B.A summary of Kim's property holdings follows. *Unrelated to Kim's regular business and operations. Determine Kim's property factors for the two states.A's statutes provide that the average historical cost of business property is to be included in the property factor.B's statutes provide that the property factor is based on the average depreciated basis of in-state business property. Kim Corporation's property factor is 61.90% for State A,and its property factor for State B is 44.53%.Under the statutes of A and B,nonbusiness property (i.e. ,the rental property)is not taken into consideration in computing the property factor.The basis for determining the average property in A is historical cost,whereas the value employed for B is depreciated cost.

Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S.states.To which state(s)' payroll factor(s)is Sylvia's compensation assigned? Apply the general UDITPA rules.

Compute Quail Corporation's State Q taxable income for the year.

In international taxation,we discuss income sourcing rules and the permanent establishment doctrine.In multistate taxation,an analogous term might be the "ultimate destination concept." Define this term,and identify at least two of the most important exceptions to the general rule.

Apportionment is a means by which a corporation's _________________________ income is divided among the states in which it conducts business.

Under P.L.86-272,which of the following transactions by itself would create nexus with a state?

The ____________________ tax usually is applied at the city or county level,as its main source of revenue.

A unitary business applies a combined apportionment formula,including data from operations of all of the affiliates.

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. or

Under common terminology,a unitary group files a ____________________ state income tax return.

In determining taxable income for state income tax purposes,the state NOL deduction typically constitutes a(n)____________________ modification.

Bulky Company sold an asset on the first day of the tax year for $500,000.Bulky's Federal tax basis for the asset was $300,000.Because of differences in cost recovery schedules,the state regular-tax basis in the asset was $375,000.What adjustment,if any,should be made to Bulky's Federal taxable income in determining the correct taxable income for the typical state?

Compost Corporation has finished its computation of Federal taxable income.In State Q,the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications.List at least five such modifications that Compost is likely to encounter.