Exam 13: Jurisdictional Issues in Business Taxation

Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%.

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

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

The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax, the after-tax cost of the state tax is $13,000.

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 taxes is eligible for the foreign tax credit?

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

Chester, Inc., a U.S. multinational, earns income in three foreign countries. Country A has a 25% income tax, Country B has a 35% income tax, and Country C has a 45% income tax. In which of these countries could Chester lower its world-wide tax liability by operating through a foreign subsidiary rather than a domestic subsidiary? Assume the foreign subsidiary will reinvest all after-tax earnings rather than paying dividends.

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.

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will minimize state taxes if it constructs a new manufacturing plant in Colorado.

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

Pennworth Corporation operates in the United States and foreign country M. Its domestic subsidiary Delco, Inc. operates in foreign country N. This year, the two corporations report the following. If Pennworth and Delco file a consolidated U.S. tax return, compute consolidated income tax liability.

A corporation is usually subject to tax by any state in which it engages in any business transactions.

According to Public Law 86-272, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

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

Which of the following activities create state income tax nexus?

Verdi Inc. has before-tax income of $500,000. Verdi operates entirely in state Q, which has a 10% corporate income tax. Compute Verdi's combined federal and state tax burden as a percentage of its before-tax income.

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.