Exam 16: Multi-State Corporate Taxations

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

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:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Computing services purchased by a business.

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. -WillCo completes the construction of production facilities in S.

Typically, sales/use taxes constitute about 20 percent of a state's annual tax collections.

An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000. The payroll factor assigns $65,000 for this employee.

Most states exempt consumer purchases of groceries from the collection of the local sales tax.

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.

Milt Corporation owns and operates two facilities that manufacture paper products. One of the facilities is located in State D, and the other is located in State E. Milt generated $1,200,000 of taxable income, comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from the sale of nonbusiness property located in E. E does not distinguish between business and nonbusiness property. D apportions business income. Milt's activities within the two states are outlined below. ​ State D State E T otal Sales of paper products \ 4,500,000 \ 1,500,000 \ 6,000,000 Property 3,500,000 2,500,000 6,000,000 Payroll 1,500,000 1,000,000 2,500,000 ​ Both D and E utilize a three-factor apportionment formula, under which sales, property, and payroll are equally weighted. Determine the amount of Milt's income that is subject to income tax by each state.

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

You are preparing to make a presentation to a client who has some familiarity with state corporate income tax rules. At a general level, list for the client the principles of multistate tax planning.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A garment purchased for resale.

When a _________________________ 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.

Which of the following is not immune from state income taxation, even if P.L. 86-272 is in effect?

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

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. StateX StateZ Totals Sales \ 1,500,000 \ 1,000,000 \ 2,500,000 Property 500,000 -0- 500,000 Payroll 2,000,000 -0- 2,000,000 ? Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

In international taxation, we discuss income sourcing rules and the permanent establishment doctrine. In multistate taxation, an analogous term might be the "ultimate destination concept." Define this term, and identify at least two of the most important exceptions to the general rule.

Almost all of the states allow ____________________ treatment to an LLC for income tax purposes.

Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Account Balances at Beginning of Year }$ State M State O Totals Inventories \ 200,000 \ 300,000 \ 500,000 Buil ding \& machinery (cost) 700,000 300,000 1,000,000 Accumulated depreciation (150,000) (50,000) (200,000) Land Totals $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Account Balances at Year- End }$ Sate M State O Totals Inventories \ 400,000 \ 100,000 \ 500,000 Buil ding \& machinery (cost) 800,000 500,000 1,300,000 Accumulated depreciation (300,000) (100,000) (400,000) Land Totals Annual rent payments Bert's State M property factor is:

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) ____________________ modification.