Exam 13: Jurisdictional Issues in Business Taxation

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 income will be taxed by Oklahoma?

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

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.

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

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

A controlled foreign corporation is a foreign corporation in which U.S. shareholders own more than 50% of the voting power or stock value.

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

Stockholm Imports Inc., a U.S. multinational, received a $500,000 dividend from its foreign subsidiary. The subsidiary paid $112,000 foreign income tax with respect to this dividend. Stockholm's U.S. tax rate is 34%. If Stockholm has no other foreign source income, compute its deemed paid foreign tax credit.

Southern, an Alabama corporation, has a $7 million excess FTC carryforward attributable to its foreign branch manufacturing operations. Which of the following strategies should increase Southern's use of its FTC carryforward to reduce U.S. tax?

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.

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

In which of the following cases are the U.S. shareholders in a controlled foreign corporation (CFC) deferring U.S. tax on the CFC's income?

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

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. Cromwell's taxable income, before apportionment, is $3 million. Its sales, payroll, and property information are as follows. a. Calculate Origami's apportionment factors, income apportioned to each state, and state tax liability. b. 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

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

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%.

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

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. Many Mountains paid $15,000 income tax to Country X and $28,500 income tax to Country Y. Compute Many Mountains' allowable foreign tax credit.

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

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?