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Exam 16: Multi-State Corporate Taxations

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Question 21

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Under common terminology, a unitary group files a ____________________ (combined/consolidated) state income tax return.

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Question 22

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The model law relating to the assignment of income among the states for corporations is:

A) Public Law 86-272.
B) The Multistate Tax Treaty.
C) The Multistate Tax Commission (MTC) .
D) The Uniform Division of Income for Tax Purposes Act (UDITPA) .

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

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Question 23

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Sales/use tax in most states applies to a restaurant meal.

List at least five items that are included in the payroll factor of a typical state. Consider all forms of compensation that an employee might receive. Apply the general UDITPA rules.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Purchasing ads that show up on search-result screens for internet browsers.

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Checking the customer's inventory to determine whether a reorder is needed.

Hopper Corporation's property holdings in State E are as follows. $\begin{array}{lc}&\text { Property factor}\\\text { Item }&\text { valuation (\$M) }\\ \text { Manufacturing equipment } & 100 \\\text { Land held for potential appreciation } & 25 \\\text { Manufacturing equipment that is not currently needed and sits idle } & 15 \\\text { Manufacturing equipment that is not currently needed and is leased } & 20 \\\text { to another taxp ayer } &\end{array}$ Compute the numerator of Hopper's E property factor.

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 sales-only apportionment formula.

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. This exemption is known as the "homestead rule."

The starting point in computing state taxable income generally is ____________________.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A garment purchased by a self-employed actress.

The sales/use tax that is employed by most U.S. states does not fall on all retail transactions. Identify at least five sales/use tax exemptions that states often allow, eliminating certain transactions from the tax base.

Boot Corporation is subject to income tax in States A and B. Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Totals } \\\text { Sales } & \$ 200,000 & \$ 600,000 & \$ 800,000 \\\text { Payroll } & 100,000 & 50,000 & 150,000 \\\text { Property } & 200,000 & 50,000 & 250,000\end{array}$ ? How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?

An ad valorem property tax is based on the asset's current ____________________.

Mercy Corporation, headquartered in State F, sells wireless computer devices, including keyboards and bar code readers. Mercy's degree of operations is sufficient to establish nexus only in States E and F. Determine its sales factor in those states. State E applies a throwback rule to sales, while State F does not. State G has not adopted an income tax to date. Mercy reported the following sales for the year. All of the goods were shipped from Mercy's F manufacturing facilities. $\begin{array} { l l r } \text { Customer } & \text { Customer's Location } & \text { This Year's Sales } \\\text { NorCo } & \text { E } & \$ 60,000,000 \\\text { Tools, Inc. } & \text { F } & 20,000,000 \\\text { UniBell } & \text { G } & 50,000,000 \\\text { U.S. Department of Defense } & \text { All } 50 \text { U.S. States } & 20,000,000 \\\text { Total } & & \mathbf { \$ 1 5 0 , 0 0 0 , 0 0 0 }\end{array}$

In conducting multistate tax planning, the taxpayer should:

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.

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

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