Exam 13: Jurisdictional Issues in Business Taxation

Korn,Co.was incorporated in Delaware.It has production,distribution,and sales facilities in Kansas and Nebraska.All of Korn's customers reside in Kansas or Nebraska.Assume that both states use the UDITPA formula for apportionment of income.The corporation is investing in new equipment that cost $900,000.The equipment could be used in either the Kansas or Nebraska production facilities.Assume that Kansas' corporate income tax rate is 7% and Nebraska's is 8.5%.Should the equipment be placed in Kansas or Nebraska to minimize Korn's state income tax?

Which of the following statements about the foreign tax credit is true?

Chester,Inc.,a U.S.multinational,earned $4 million this year from both domestic and international operations.Of this amount,$1.3 million qualifies as foreign-derived intangible income (FDII).If Chester pays no foreign income tax,compute its U.S.income tax liability.

World Sales,Inc.,a U.S.multinational,had pretax U.S.source income and foreign source income as follows: World Sales paid $50,000 income taxes to Country O.What is World Sale's U.S.tax liability if it deducts the foreign taxes paid?

This year,Sutton Corporation's before-tax income was $2,000,000.It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa.Compute Sutton's federal income tax.

The foreign tax credit is available for income taxes paid to a foreign country.

Albany,Inc.does business in states C and D.State D uses an apportionment formula that double-weights the sales factor; state C apportions income using an equally-weighted three-factor formula.Albany's before tax income is $3,000,000,and its sales,payroll,and property factors are as follows. Calculate Albany's income taxable in each state.

Koscil Inc.had the following taxable income. Koscil paid $315,000 foreign income tax.Compute its U.S.income tax liability.

DFJ,a Missouri corporation,owns 55% of Duvall,a foreign corporation formed under Krunian law.Krunia is a central European country with a 22% corporate income tax and no income tax treaty with the United States.Last year,DFJ leased equipment to Duvall for a $415,000 annual rent payment.DFJ reported the rent as taxable income,while Duvall deducted it in the computation of taxable income.This year,the IRS determined that an arm's length rent for the equipment should be $600,000.The IRS can use its Section 482 authority to:

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

Global Corporation,a U.S.multinational,began operations this year.Global had pretax U.S.source income and foreign source income as follows: Global paid $15,000 income tax to Country X.What is Global's U.S.tax liability if it takes the foreign tax credit?