Exam 13: Jurisdictional Issues in Business Taxation

In the United States, corporations are subject only to taxes imposed by the federal government.

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Corporate tax rate schedule. U.S. source income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 1,000,000 Foreign source income-Country A $\quad$$\quad$$\quad$$\quad$ 500,000 Total $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 1,500,000 -Fleming paid $50,000 income tax to Country A. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Albany, Inc. does business in states C and D. State D uses an apportionment formula that double-weights the sales factor; state C apportions income using an equally-weighted three-factor formula. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows. Calculate Albany's income taxable in each state.

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

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.

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

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: -Which of the following statements is true?

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

Cambridge, Inc. conducts business in states X and Y. This year, its before-tax income was $150,000. Below is information regarding its sales, payroll, and property factors in both states. Both states apply an equally-weighted three-factor formula to apportion income. State X has a 10% corporate income tax and state Y has a 5% corporate income tax. Compute the state tax savings if Cambridge could relocate $100,000 of property and $50,000 of payroll from state X to state Y.

GAAP-based consolidated financial statements include only income earned by the consolidated group's domestic subsidiaries.

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

Jovar Inc., a U.S. multinational, began operations this year. Jovar had pretax U.S. source income and foreign source income as follows. Corporate tax rate schedule. U.S. source income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 600,000 Foreign source income-Country O $\quad$$\quad$$\quad$ 100,000 Total $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 700,000 Jovar paid $50,000 income tax to Country O. Compute Jovar's U.S. tax liability if it takes the foreign tax credit.

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

All states assessing an income tax use the same formula for apportionment purposes.

For dividends received prior to 2018, the deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

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.

A foreign branch operation of a U.S. corporation is not a separate legal entity.

Which of the following taxes is eligible for the foreign tax credit?

The United States taxes its citizens on their worldwide incomes.

Which of the following entities is not subject to U.S. federal income tax?