Exam 13: Jurisdictional Issues in Business Taxation

Albany, Inc. does business in states C and D. State C uses an apportionment formula that double-weights the sales factor; state D 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.

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 Oklahoma 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?

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows. 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.

Economic nexus:

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.

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

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

Sunny, a California corporation, earned the following income this year. Sunny owns 100% of Sun de Sud, a foreign corporation operating a business in Country M and paying foreign income tax at a 50% rate. Sunny paid $124,000 foreign income tax to Country L, $203,000 income tax to Country Q, and no foreign withholding tax on its Sun de Sud dividends. Assuming a 34% tax rate, compute Sunny's U.S. tax.

Pogo, Inc., which has a 34 percent marginal tax rate, owns 50 percent of the stock of a CFC. At the beginning of the year, Pogo's basis in the CFC stock was $2 million. The CFC's current year earnings were $750,000 of which $600,000 was subpart F income. The CFC paid no foreign income tax and distributed no dividends. a. Explain Pogo's U.S. tax consequences with respect to its investment in the CFC. b. Compute Pogo's basis in its CFC stock at the end of the year.

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

Which of the following statements regarding Internal Revenue Code Section 482 is false?

The United States taxes its citizens on their worldwide incomes.

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.

Transfer prices cannot be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions.

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

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

World Sales, Inc., a U.S. multinational, had pretax U.S. source income and foreign source income as follows. World Sales paid $50,000 income taxes to Country O. What is World Sale's U.S. tax liability if it deducts the foreign taxes paid?

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.

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

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