Exam 13: Jurisdictional Issues in Business Taxation

Frost Inc., a calendar year U.S. corporation, owns 20 percent of the stock of Snowflake, Inc. a calendar year specified foreign corporation. Prior to 2018, Snowflake has accumulated deferred foreign earnings of $30 million and zero aggregate foreign cash position. Compute Frost's tax liability on its mandatory inclusion amount related to its ownership of Snowflake.

Which of the following would qualify as a permanent establishment for income tax treaty purposes?

Which of the following statements about the foreign tax credit is true?

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows: U.S. source income \1 ,000,000 Foreign source income-country A 500,000 Total \1 ,500,000 Fleming paid $200,000 income tax to Country A. Assume Fleming's foreign source income does not qualify as foreign-derived intangible income. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Tri-State's, Inc. operates in Arkansas, Oklahoma, and Kansas. Assume that each state has adopted the UDITPA formula. During the corporation's tax year ended December 31, the apportionment data indicated: Arkansas Okahoma Kansas total Gross receipts/sales \ 175,000 \ 225,000 \ 100,000 \ 500,000 Payroll 20,000 140,000 20,000 180,000 Property 50,000 600,000 50,000 700,000 Tri-State's income for the current year is $250,000. Approximately how much income will be taxed by Oklahoma?

Jenkin Corporation reported the following for its first two taxable years. Assume that the tax rates for both the years are the same. Year 1 Year 2 U.S. source income 500,000 \ 600,000 Foreign source income 200,000 400,000 Taxable income \7 00,000 \ 1,000,00 Foreign tax paid \8 0,000 \ 50,000 Calculate Jenkin's U.S. tax liability for Year 2. Assume Jenkin's foreign source income does not qualify as foreign-derived intangible income.

Tri-State's, Inc. operates in Arkansas, Oklahoma, and Kansas. Assume that each state has adopted the UDITPA formula. During the corporation's tax year ended December 31, the apportionment data indicated: Arkansas Okahoma Kansas total Gross receipts/sales \ 175,000 \ 225,000 \ 100,000 \ 500,000 Payroll 20,000 140,000 20,000 180,000 Property 50,000 600,000 50,000 700,000 Tri-State's income for the current year is $250,000. Approximately how much will be taxed by Kansas?

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

Berger is a controlled foreign corporation with $2 million of subpart F income and $3.5 million of global intangible low-taxed income. Salter, Inc., a U.S. corporation, owns 100% of Berger's stock. Compute Salter's incremental U.S. tax liability (before credits) resulting from its ownership of Berger.

If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

Sales to foreign customers through a branch office of a U.S. corporation are considered foreign-derived intangible income eligible for a preferential tax rate.

Jovar Inc., a U.S. multinational, began operations this year. Jovar had pretax U.S. source income and foreign source income as follows: U. S. source income \5 00,000 Foreign source income-Country O 200,000 Total \7 00,000 Jovar paid $50,000 income tax to Country O. Assume Jovar's foreign source income does not qualify as foreign-derived intangible income. Compute Jovar's U.S. tax liability if it takes the foreign tax credit.

Excess foreign tax credits can only be carried to future tax years.

Origami does business in states X and Y. State X uses an equally-weighted three-factor apportionment formula and has a 4 percent state tax rate. State Y uses an apportionment formula that double-weights the sales factor and has a 6 percent tax rate. Origami's taxable income, before apportionment, is $3 million. Its sales, payroll, and property information are as follows. X Y Total Gross receipts/sales \ 575,000 \ 100,000 \ 675,000 Payroll 140,000 60,000 200,000 Property 600,000 150,000 750,000 Calculate Origami's apportionment factors, income apportioned to each state, and state tax liability.State Y is considering changing its apportionment formula to a single sales factor. Given its current level of activity, would such a change increase or decrease Origami's state income tax burden? Provide calculations to support your conclusion.

World Sales, Inc., a U.S. multinational, had pretax U.S. source income and foreign source income as follows: U. S. source income \5 00,000 Foreign source income-Country O 200,000 Total \7 00,000 World Sales paid $50,000 income taxes to Country O. Assume World Sales' foreign source income does not qualify as foreign-derived intangible income. What is World Sales' U.S. tax liability if it deducts the foreign taxes paid?

Under the U.S. tax system, a domestic corporation pays U.S. tax only on the portion of its business income earned in the United States.

The sales factor in the UDITPA state income tax apportionment formula equals out-of-state sales divided by total sales.

Koscil Inc. had the following taxable income. U.S. source income \1 ,435,000 Foreign source income 850,000 Taxable income \2 ,285,000 Koscil paid $315,000 foreign income tax. Assume Koscil's foreign source income does not qualify as foreign-derived intangible income. Compute its U.S. income tax liability.

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

Lincoln Corporation, a U.S. corporation, owns 50% of the stock of a controlled foreign corporation (CFC). At the beginning of the year, Lincoln's basis in its CFC stock was $100,000. The CFC's current-year income was $1 million, $600,000 of which was subpart F income. The CFC has no global intangible low-taxed income, paid no foreign income tax and distributed no dividends. How much current taxable income must Lincoln report as a result of its ownership of the CFC?