Exam 24: Multistate Corporate Taxation

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

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 throwback rule.

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, State X defines payroll as all compensation paid to employees, including elective contributions to § 401(k) deferred compensation plans. Under the statutes of State W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Trayne incurred the following personnel costs. State X State W Totals Wages and salaries for employees other than officers \ 500,000 \ 300,000 \ 800,000 Salaries for officers 300,000 150,000 450,000 Contributions to \S401() plans 200,000 50,000 250,000 Totals \ 1,000,000 \ 500,000 \ 1,500,000 Trayne's payroll factor for State is: a. 100.00%. b. 66.67%. c. 62.50%. d. 50.00%.

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

A unitary business applies a combined apportionment formula, including data from operations of all affiliates.

Britta Corporation's entire operations are located in State A. Of Britta's sales, 80% ($800,000) are made in State A and the remaining sales ($200,000) are made in State B, which has not adopted a corporate income tax. If State A has adopted a throwback rule, the numerator of Britta's State A sales factor is:

Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Purchasing ads that appear on search-result screens of internet browsers.

With respect to typical sales/use tax laws:

The tax levied by a state usually is based on the book value of a corporation's net worth.

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.

Apportionment is a means by which a corporation's taxable income is divided among the states in which it conducts business.

In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction modification from Federal income?

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

A state sales tax usually falls upon:

Franz Corporation is based in State A (corporate income tax rate 10%). It sells its goods to customers in both State A and State B (corporate income tax rate 4%). Franz's state taxable income for the year is $1 million, 45% of which relates to State B customers. Franz's level of activities in State B is insufficient to create nexus there, but State A has adopted a throwback rule as to multistate sales. Would Franz reduce its total state income tax liability by creating nexus with State B, for example, by allowing its sales force to make credit decisions? Elaborate.

Although apportionment formulas vary among jurisdictions, most states use the same three factors in the formula. The factors are ____________________, ____________________, and ____________________.

Under P.L. 86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

A state sales tax usually falls upon:

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A garment purchased by a self-employed actress.

A use tax applies when a State A resident purchases: