Exam 13: Jurisdictional Issues in Business Taxation

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.

San Carlos Corporation,a U.S.multinational,had pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. San Carlos paid $100,000 income tax to Country W.Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

Galaxy Corporation conducts business in the U.S.and in Country X.In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Orchid Inc.,a U.S.multinational with a 34% marginal tax rate,owns a foreign subsidiary operating in a country with a 25% income tax.This year,the subsidiary generated $400,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no subpart F income?

Koscil Inc.had the following taxable income.Corporate tax rate schedule. Koscil paid $315,000 foreign income tax.Compute its U.S.income tax liability.

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

The foreign tax credit can reduce a corporation's alternative minimum tax.

The deemed paid foreign tax credit is available only to U.S.corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

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

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.

Which of the following statements about the deemed paid foreign tax credit is false?

Economic nexus:

Korn,Co.was incorporated in Delaware.It has production,distribution,and sales facilities in Kansas and Nebraska.All of Korn's customers reside in Kansas or Nebraska.Assume that both states use the UDITPA formula for apportionment of income.The corporation is investing in new equipment that cost $900,000.The equipment could be used in either the Kansas or Nebraska production facilities.Assume that Kansas' corporate income tax rate is 7% and Nebraska's is 8.5%.Should the equipment be placed in Kansas or Nebraska to minimize Korn's state income tax?

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

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

Which of the following statements concerning the nexus required for a state to tax income is false?

Mega,Inc.,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Mega paid $20,000 income tax to Country M.Mega has a $25,000 foreign tax credit carryforward.What is Mega's U.S.tax liability if it takes the foreign tax credit?

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

A foreign source dividend received by a U.S.corporation is eligible for the 70% dividends-received deduction.

Article 1 of the U.S.Constitution,referred to as the commerce clause,prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.