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Exam 16: Multistate Corporate Taxation

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Question 71

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A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

A) True
B) False

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Question 72

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General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S. government. General has not established nexus with B. State A does not apply a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

A) In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
B) $100,000 in A.
C) $100,000 in B.
D) $0 in both A and B.

E) C) and D)
F) All of the above

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Question 73

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A tax is designed to complement the local sales tax structure, to prevent the consumer from making no- or low-tax purchases in another state, outside the U.S., or online, and then bringing the asset into the state.

A typical state taxable income addition modification is for the Federal income tax paid for the tax year.

In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

A city might assess a recording tax when a business takes out a mortgage on its real estate.

A state sales tax usually falls upon:

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a. Taxable b. Not taxable -A garment purchased for wear at an office job.

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. In this regard, follow the general UDITPA rules, and list both addition and subtraction modifications.

Zhao Company sold an asset on the first day of the tax year for $500,000. Zhao'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 $350,000. What adjustment, if any, should be made to Zhao's Federal taxable income in determining the correct taxable income for the typical state?

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 throwback rule.

Almost all of the states allow treatment to an LLC for income tax purposes.

The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.

Discuss how a multistate business divides up its corporate taxable income among the states in which it operates. Hint: use the terms allocation and apportionment in your comments.

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

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 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 E capital stock tax.

The tax levied by a state usually is based on the book value of a corporation's "net worth."

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

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a. Taxable b. Not taxable -Computing services purchased by a business.