Exam 16: Multistate Corporate Taxation

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.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected a.Taxable b.Not taxable -Computing services purchased by a business.

Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected a.Taxable b.Not taxable -Groceries purchased by a consumer and taken home for meal preparation there.

In most states, legal and accounting services are exempt from the sales/use tax base.

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.

Typical indicators of income-tax nexus include the presence of customers in the state.

Match each of the following events, considered independently, to its likely effect on WillCo's various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S. More than one choice may be correct -Q adopts a sales-only apportionment formula.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected a.Taxable b.Not taxable -A garment purchased for resale.

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.

Britta Corporation's entire operations are located in State A. Eighty percent ($800,000) of Britta's sales are made in A and the remaining sales ($200,000) are made in State B. B has not adopted a corporate income tax. If A has adopted a throwback rule, the numerator of Britta's A sales factor is:

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation -Checking the customer's inventory to determine whether a reorder is needed.

Helene Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales. Helene'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. ​ Helene's apportionable income assigned to A is:

S corporations flow-through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

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.

Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation's sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. ​ Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y. ​ Adams's income attributed to X is:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected a.Taxable b.Not taxable -Computer equipment purchased by a charity.

Flint Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Flint's Federal taxable income is $750,000, which includes a $50,000 deduction for state income taxes. During the year, Flint received $10,000 interest on Federal obligations. X tax law does not allow a deduction for state income tax payments. ​ Flint's taxable income for X purposes is:

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. ​ Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?