Exam 24: Multistate Corporate Taxation

The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.

A typical state taxable income addition modification is for the Federal income tax paid for the tax year.

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

State and local politicians tend to apply new and increased taxes to taxpayers who are visitors to the jurisdiction,such as a tax on auto rentals,because the taxpayer cannot vote to reelect the lawmaker.

List at least five items that are included in the payroll factor of a typical state.Consider all forms of compensation that an employee might receive.Apply the general UDITPA rules.

Politicians frequently use tax credits and exemptions to create economic development incentives.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a.Taxable b.Not taxable -A garment purchased for resale.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a.Taxable b.Not taxable -A garment purchased by an employee for wear at an office job.

A state can levy an income tax on a business only if the business was incorporated in the state.

Trayne Corporation's sales office and manufacturing plant are located in State X.Trayne also maintains a manufacturing plant and sales office in State W.For purposes of apportionment,X defines payroll as all compensation paid to employees,including elective contributions to § 401(k) deferred compensation plans.Under the statutes of W,neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor.Trayne incurred the following personnel costs. State X State W Totals Wages and salaries for employees other than officers $ 500,000 $300,000 $ 800,000 Salaries for officers 300,000 150,000 450,000 Contributions to § 401(k) plans 200,000 50,000 250,000 Totals $1,000,000 $500,000 $1,500,000 Trayne's payroll factor for State X is:

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state,such as entities with in-state headquarters.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. a.More than solicitation, creates nexus b.Solicitation only, no nexus created -Training administrative personnel to use an update to ordering software.

Under P.L.86-272,which of the following transactions by itself would create nexus with a state?

By making a water's edge election,the multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S.and E.U.affiliates.

Most states exempt consumer purchases of groceries from the collection of the local sales tax.

A state sales tax usually falls upon:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a.Taxable b.Not taxable -Prescription drugs and medicines purchased by a consumer.

In determining taxable income for state income tax purposes,interest income from another state's bonds typically constitutes a(n) ____________________ modification.

Match each of the following terms with the appropriate description, in the state income tax formul a. Apply the UDITPA rules in your responses. a.Addition modification b.Subtraction modification c.No modification -Treasury Bond interest income.

Hendricks Corporation sells widgets in two states.State A levies a 9% effective tax rate,and State B levies a 3% rate.A and B have adopted sales-factor-only apportionment formulas.To reduce overall multistate income tax liabilities,Hendricks should: