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Exam 16: Multistate Corporate Taxation

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Question 41

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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.

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Most state and local governmen...

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Question 42

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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:

A) Organized in the U.S.
B) Organized anywhere in the world.
C) Organized in NAFTA countries.
D) Owned more than 50% by other affiliates in the group.

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

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Question 43

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Although Bowl Corporation's manufacturing facility,distribution center,and retail store are located in State K,Bowl sells its products to residents located in States K,M,and N.Sales to residents of K are conducted through a retail store.Sales to residents of M are obtained by Bowl's sales representative,who has the authority to accept and approve sales orders.Residents of N can purchase Bowl's product only if they place an order online and arrange to take delivery of the product at Bowl's shipping dock.Bowl's sales were as follows. Bowl's activities within the three states are limited to those described above.All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales,property,and payroll are equally weighted.K sources dock sales to the destination state.Determine Bowl's sales factors for K,M,and N.

List which items are included in the payroll factor of a state.Consider all forms of compensation that an employee might receive.Apply the general UDITPA rules in answering this question.

Indicate for each transaction whether a sales (S)or use (U)applies,or whether the transaction is nontaxable (N).Where the laws vary among various states,assume that the most common rules apply.All taxpayers are individuals.

The property factor includes real property and construction in progress.

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

A use tax:

Trayne Corporation's sales office and manufacturing plant are located in State X.Trayne also maintains a manufacturing plant and sales office in State W.For purposes of apportionment,X defines payroll as all compensation paid to employees,including elective contributions to § 401(k) deferred compensation plans.Under the statutes of W,neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor.Trayne incurred the following personnel costs. Trayne's payroll factor for State X is:

Most states' consumer sales taxes apply directly to the final purchaser of the taxable asset,with the purchaser remitting the tax to the state treasury.

What is the significance of the term nexus when discussing state income taxation?

List some of the most commonly encountered state income tax modifications,used in computing state taxable income.

An assembly worker earns a $30,000 salary and receives a fringe benefit package worth $15,000.The payroll factor assigns $45,000 for this employee.

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.

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,X defines payroll as all compensation paid to employees,including contributions to § 401(k) deferred compensation plans.Under the statutes of W,neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor.Net incurred the following personnel costs. Net's payroll factor for State W is:

Your client wants to reduce its overall state/local income tax rate.It holds income-producing assets of various types,including tangible personal property,rental land and buildings,and high-yield stocks and bonds.How might this taxpayer restructure its operations to achieve the desired tax result?

Dough Company sold an asset on the first day of the tax year for $500,000.Dough'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 Federal taxable income in determining the correct taxable income for the typical state?

Politicians use tax devices to create economic development incentives.

Double weighting the sales factor effectively increases the tax burden on taxpayers based in the state,such as corporations with in-state headquarters.

A typical state taxable income addition modification is the Federal income tax expense.