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Exam 24: Multistate Corporate Taxation

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Question 1

Multiple Choice

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In determining state taxable income, all of the following are adjustments to Federal income except:

A) Federal net operating loss.
B) State income tax expense.
C) Fringe benefits paid to officers and executives.
D) Dividends received from other U.S. corporations.

E) All of the above
F) A) and B)

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Question 2

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Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Operating a warehouse for inventory that is held in the state.

A) More than solicitation, creates nexus
B) Solicitation only, no nexus created

C) A) and B)
D) undefined

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Question 3

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General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. This activity is not sufficient for General to create nexus with State B. State B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator?

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -Groceries purchased by an individual and taken home for meal preparation there.

All of the U.S. states have adopted a tax based on the net taxable income of corporations.

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

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

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 United States, or online and then bringing the asset into the state.

A taxpayer automatically has nexus with a state for sales and use tax purposes if it has income tax nexus with the same state.

A typical U.S. state piggybacks its collections of the corporate income tax by letting the Federal government collect and remit the corresponding tax to the state.

State and local politicians tend to apply new and increased taxes to taxpayers who are nonresident visitors to the jurisdiction, such as a tax on auto rentals and hotel stays, because the taxpayer cannot vote to reelect (or oust) the lawmaker.

When a _________________________ rule is in effect, out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.

Net Corporation's sales office and manufacturing plant are located in State X. Net also maintains a manufacturing plant and sales office in State W. For purposes of apportionment, State X defines payroll as all compensation paid to employees, including contributions to § 401(k) deferred compensation plans. Under State W's statutes, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Net incurred the following personnel costs: \begin{array}{llr} \text { Wages and salaries for emplovees other } &\$500,000&\$300,000&\$800,000\\ \text { than officers } &\\ \text { Salaries for officers } &300,000&150,000&450,000\\ \text {Contributions to \S 401(\mathrm{k}) plans } &200,000&50,000&250,000\\ \text { Totals } &\$1,000,000&\$500,000&\$1,500,000\\\end{array} $\text {Net's pavroll factor for State W is:}$

Simpkin Corporation owns manufacturing facilities in States A, B, and C. State A uses a three-factor apportionment formula under which the sales, property, and payroll factors are equally weighted. State B uses a three-factor apportionment formula under which sales are double-weighted. State C employs a single-factor apportionment factor, based solely on sales. Simpkin's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows: $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ Simpkin's apportionable income assigned to State B is:

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -Computer equipment purchased by a charity.

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

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

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

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

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