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Exam 16: Multi-State Corporate Taxations

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Question 61

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Garcia Corporation is subject to tax in States G, H, and I. Garcia's compensation expense includes the following. $\begin{array} { l r r r r } & \text { State G } & \text { State H } & \text { State I } & \text { T otal } \\\text { Salaries and wages for nonofficers } & \$ 600,000 & \$ 500,000 & \$ 500,000 & \$ 1,600,000 \\\text { Officers' salaries } & - 0 - & - 0 - & 800,000 & 800,000\end{array}$ Officers' salaries are included in the payroll factor for States G and H, but not for I. Compute Garcia's payroll factors for G, H, and I.

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Question 62

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

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Question 63

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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.

Allocation is a method under which a corporation's _________________________ income is directly assigned to the specific states where the income is derived.

Although apportionment formulas vary among jurisdictions, most states use the same three factors in the formula. The factors are ____________________, ____________________, and ____________________.

A state can levy an income tax on a business only if the business was incorporated in the state.

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

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

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

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

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.

The benefits of a passive investment company typically include:

Franz Corporation is based in State A (corporate income tax rate 10%). It sells its goods to customers in both A and State B (corporate income tax rate 4%). Franz's state taxable income for the year is $1 million, 45% of which relates to B customers. Franz's level of activities in B is insufficient to create nexus there, but A has adopted a throwback rule as to multistate sales. Would Franz reduce its total state income tax liability by creating nexus with B, say by allowing its sales force to make credit decisions? Elaborate.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Making a decision as to the creditworthiness of customers.

Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.

Nonbusiness income receives tax-exempt treatment under all state corporate income taxes.

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

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

In computing the property factor, property owned by the corporation typically is valued at its ____________________, but without adjusting for depreciation.

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.