Exam 23: State and Local Taxes

Big Company and Little Company are both owned by Mrs. Smith. Big and Little file a consolidated federal tax return. Big manufactures office paper and other paper supplies and is based in Washington. Little operates a logging operation in Montana. Sixty percent of Little's sales are made to Big. Ten percent of Big's raw materials come from Little. There are no common officers or board members. There are no common service providers. What are the factors for and against filing aunitary tax return?

Public Law 86-272 protects a taxpayer from which of the following taxes?

The throwback rule requires a company, for apportionment purposes, to include all sales of inventory sold into a state without nexus rather than from the state from where the inventory was shipped.

The sales and use tax base varies from state to state.

Immaterial violations of the solicitation rules automatically create income tax nexus.

Mighty Manny, Incorporated manufactures and services deli machinery and distributes them across theUnited States. Mighty Manny is incorporated and headquartered in New Jersey. It has sales and use tax nexus in Connecticut, New Jersey, New York, Pennsylvania, Rhode Island, and South Carolina. Mighty Manny has sales as follows: Assume the following sales tax rates: Connecticut (6.75 percent), New Jersey (7.5 percent), New York (8.5 percent), Pennsylvania (6.5 percent), Rhode Island (7.25 percent), and South Carolina (5.5 percent). Assume that Connecticut also taxes Mighty Manny's services. What is Mighty Manny's total sales and use taxliability?

Most services are sourced to the state where the services were performed.

The primary purpose of state and local taxes is to raise revenue to finance state and localgovernment.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. The Shop sells, manufacturers, and customizes tennis racquets for serious amateurs. Virginia has a 5 percent sales tax. Assume that a District of Columbia customer picks up a $2,000 racquet order in the Blacksburg store and drives it back to the District of Columbia (where the sales tax rate is 8.5 percent). Determine the sales and use tax liability (assume the Shop has no sales personnel or property in District of Columbia) of the customer?

Failure to collect and remit sales taxes by a seller often results in a larger tax liability than failure to pay income taxes.

Which of the following is incorrect regarding nondomiciliary businesses?

Giving samples and promotional materials without charge is a protected solicitation activity.

Which of the following is not a general rule for calculating the sales factor?

Purchases of inventory for resale are typically exempt from sales and use taxes.

Public Law 86-272 protects only companies selling tangible personal property.

Businesses must collect sales tax only in states where it has sales and use tax nexus.

Assume the following sales tax rates: Alaska (6.6 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (6.75 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit in Maine?

Hoosier Incorporated is an Indiana corporation. It properly included, deducted, or excluded t8h1e)following items on its federal tax return in the current year: State depreciation expense was $50,000. Hoosier's Federal Taxable Income was $150,300. Calculate Hoosier's Illinois state tax base.

All 50 states impose a sales and use tax system.

The Quill decision reaffirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.