Exam 16: Multistate Corporate Taxation

All of the U.S. states have adopted a tax based on the net taxable income of corporations.

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

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 garment purchased by an employee for wear at an office job.

Match each of the following terms with the appropriate description in the state income tax formula. Apply the UDITPA rules in your responses. -Deduction for advertising expenditures.

State Q has adopted sales-factor-only apportionment for its corporate income tax. As a result, a__________larger/smaller) percentage of an out-of-state corporation's income is assigned to tax in the state.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B. For the taxable year, the corporation's activities within the two states were as follows: State A State B Total Sales \ 500,000 \ 1,500,000 \ 2,000,000 Property 250,000 -0- 250,000 Payroll 200,000 300,000 500,000 Dott has determined that it is subject to tax in both A and B. Both states utilize a three-factor apportionment formula that equally weights sales, property, and payroll. The rates of corporate income tax imposed in States A and B are 7% and 10%, respectively. Determine Dott's total state income tax liability.

The typical state sales/use tax falls on sales of both real and personal property.

When the taxpayer has exposure to a capital stock tax:

The throwback rule requires that:

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

Provide the required information for Orange Corporation whose Federal taxable income totals $100 million. Orange apportions 70% of its business income to State C. Orange generates $10 million of nonbusiness income each year. Of that income, 40% is attributable to rentals of buildings located in C. Orange's business income this year totals $90 million. a. State C taxes how much of Orange's business income? b. State C taxes how much of Orange's nonbusiness income? c. Explain your results.

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.

You are completing the State A income tax return for Quaint Company, LLC. Quaint operates in various states with the following results: Ordinary income \ 800,000 Net capital loss 60,000) Interest income, IBM bond 40,000 In State A, all interest is treated as apportionable income. State A uses a sales-only apportionment factor. Compute Quaint's State A taxable income. State A All Other States Total Sales \ 800,000 \ 1,200,000 \ 2,000,000 Property average cost) 250,000 2,000,000 2,250,000 Payroll 300,000 700,000 1,000,000

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.

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

Almost all of the states assess some form of consumer-level sales/use tax.

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

Under Public Law 86-272, a state is prohibited from income taxing the income of a business if the only connection with the state is the _________of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

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.