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Exam 16: Multijurisdictional Taxation

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Question 1

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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:

A) Have Parent charge Minor an annual management fee.
B) Shift Parent's high-cost assembly and distribution operations to Minor.
C) Execute an intercompany loan, such that Minor pays deductible interest to Parent.
D) All of the above are effective income-shifting techniques for a non-unitary group.
E) None of the above is an effective income-shifting technique for a non-unitary group.

F) C) and E)
G) A) and B)

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Question 2

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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. -Federal depreciation deduction in excess of state amount.

A) Addition modification
B) Subtraction modification
C) No modification

D) None of the above
E) All of the above

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Question 3

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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. 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?

The property factor includes business assets that the taxpayer owns, but also those merely used under a lease agreement.

Match each of the following terms with the appropriate description, in the state income tax formula.Apply the UDITPA rules in your responses. -State income tax expense.

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.

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

Which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia? Purchase of inventory from the U.S.parent, followed by:

Compute Still Corporation's State Q taxable income and tax liability for the year.

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

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

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.

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

Under the UDITPA's concept, sales are assumed to take place at the point of delivery, as opposed to the location at which the shipment originates.

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

Which of the following is a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

Match each of the following items with the appropriate description, in applying the P.L.86-272 definition of solicitation. -Carrying a free sample of a product to the customer's premises.

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.

In the broadest application of the unitary theory, the U.S.unitary business files a combined tax return using factors and income amounts for all affiliates: