Exam 24: Multistate Corporate Taxation

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

Marquardt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Marquardt's activities establish nexus for income tax purposes in both states. Marquardt's sales, payroll, and property among the states include the following: State X State Z Totals Sales $1,000,000 $3,000,000 $4,000,000 Property 2,000,000 -0- 2,000,000 Payroll 1,000,000 -0- 1,000,000 Z utilizes an equally weighted three-factor apportionment formula. Marquardt is incorporated in X. How much of Marquardt's taxable income is apportioned to Z?

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

In the apportionment formula, most states assign more than a one-third weight to the factor.

Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Making a decision as to the creditworthiness of customers.

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

Typically, sales/use taxes constitute about 20% of a state's annual tax collections for most states.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A textbook purchased by a State University student.

Most states' consumer sales taxes are to be paid by the final purchaser of the taxable asset.

Your client, Hamlin Industries, wants to reduce its overall state/local income tax liability. Hamlin holds income- producing assets of various types, including tangible personal property, rental land and buildings, and high-yield stocks and bonds. You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time. What device might Hamlin use in a restructuring of its operations to achieve the desired tax result? Be specific.

Identify some state/local income tax issues facing pass-through entities such as S corporations, partnerships, and LLCs.

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.

Bert Corporation, a calendar year taxpayer, owns property in States M and O. Both states require that the average value of assets be included in the property factor. State M requires that the property be valued at its historical cost, and State O requires that the property be included in the property factor at its net depreciated book value. $\text { Account Balances at Beginning of Year }$ State M State O Totals Inventories \ 200,000 \ 300,000 \ 500,000 Building \& machinery (cost) 700,000 300,000 1,000,000 Accumulated depreciation (150,000) (50,000) (200,000) Land 400,000 200,000 600,000 Totals \1 ,150,000 \7 50,000 \1 ,900,000 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Account Balances at Year-End }$ State M State O Totals Inventories \ 400,000 \ 100,000 \ 500,000 Building \& 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 most states, Federal S corporations must make a separate state-level election of the flow-through status.

The throwback rule requires that:

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

The individual seller of shares of stock in Facebook is liable for sales tax on the transaction.

In computing the property factor, property owned by the corporation typically is valued at its , but without adjusting for depreciation.

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.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A meal eaten at a restaurant while conducting business.