Exam 16: Multistate Corporate Taxation

Compost Corporation has finished its computation of Federal taxable income. In State Q, the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications. List at least five such modifications that Compost is likely to encounter. In this regard, follow the general UDITPA rules, and list both addition and subtraction modifications.

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:

What is the significance of the term nexus when discussing state income taxation?

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -Earthmoving equipment used by the purchaser in a construction business.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A new auto purchased in Europe and shipped by the owner to her home state in the United States.

A state sales tax usually falls upon:

State Q wants to increase its income tax collections, but politically it would be unwise to raise taxes on in-state individuals or businesses. State Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula. State Q allocates nonbusiness income amounts. Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

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.

Zhao Company sold an asset on the first day of the tax year for $500,000. Zhao's Federal tax basis for the asset was $300,000. Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $350,000. What modification, if any, should be made to Zhao's Federal taxable income in determining the correct taxable income for the typical state?

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.

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.

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

With respect to typical sales/use tax laws:

Hill Corporation is subject to tax only in State X. Hill generated the following income and deductions. State income taxes are not deductible for X income tax purposes. Sales \ 5,000,000 Cost of sales 2,000,000 State X income tax expense 160,000 Depreciation allowed for Federal tax purposes 1,000,000 Depreciation allowed for state tax purposes 800,000 Interest income on Federal obligations 50,000 Interest income on X obligations 200,000 Expenses related to carrying X obligations 10,000 a. The starting point in computing the State X income tax base is Federal taxable income. Derive this amount. b. Determine Hill's State X taxable income, assuming that interest on X obligations is exempt from State X income tax. c. Determine Hill's taxable income, assuming that interest on X obligations is subject to State X income tax.

A service engineer spends 80% of her time maintaining the employer's productive business property and 20% maintaining the employer's nonbusiness rental properties. This year, her compensation totaled $90,000. The payroll factor assigns $90,000 to the state in which the employer is based.

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following: State X State Z T otals Sales \ 1,000,000 \ 2,000,000 \ 3,000,000 Property 200,000 2,300,000 2,500,000 Payroll 100,000 1,900,000 2,000,000 X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

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

Match each of the following terms with the appropriate description in the state income tax formula. Apply the UDITPA rules in your responses. -Federal general business credit.

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.

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.