Exam 24: Multistate Corporate Taxation

The throwback rule requires that:

Kim Corporation,a calendar year taxpayer,has manufacturing facilities in States A and B.A summary of Kim's property holdings follows. Beginning of Year State A State B Total Inventory $ 300,000 $ 200,000 $ 500,000 Plant and equipment 2,200,000 1,500,000 3,700,000 Accumulated depreciation: plant and equipment (1,200,000) (500,000) (1,700,000) Land 500,000 600,000 1,100,000 Rental property* 900,000 300,000 1,200,000 Accumulated depreciation: rental property (200,000) (50,000) (250,000) ​ End of Year State A State B Total Inventory $ 400,000 $ 100,000 $ 500,000 Plant and equipment 2,500,000 1,200,000 3,700,000 Accumulated depreciation: plant and equipment (1,500,000) (450,000) (1,950,000) Land 600,000 400,000 1,000,000 Rental property* 900,000 300,000 1,200,000 Accumulated depreciation: rental property (300,000) (100,000) (400,000) *Unrelated to Kim's regular business and operations. Determine Kim's property factors for the two states.A's statutes provide that the average historical cost of business property is to be included in the property factor.B's statutes provide that the property factor is based on the average depreciated basis of in-state business property.

Under the UDITPA's ____________________ concept,sales are assumed to take place at the point of delivery,as opposed to the location at which the shipment originates.

Although apportionment formulas vary among jurisdictions,most states use the same three factors in the formula.The factors are ____________________,____________________,and ____________________.

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

General Corporation is taxable in a number of states.This year,General made a $100,000 sale from its A headquarters to a customer in B.This activity is not sufficient for General to create nexus with B.State A applies a throwback rule,but State B does not.In which state(s) will the sale be included in the sales factor numerator?

Your client,Hamlin Industries,wants to reduce its overall state/local income tax liability.Hamlin holds income-producing assets of various types,including tangible personal property,rental land and buildings,and high-yield stocks and bonds.You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time.What device might Hamlin use in a restructuring of its operations to achieve the desired tax result? Be specific.

Anders,a local business,wants your help in making a decision about a large capital investment.To assist your client,list several tax and non-tax implications of the decision.

Under P.L.86-272,the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Match each of the following events, considered independently, to its likely effect on WillCo's various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S. More than one choice may be correct. a.No change in apportionment factors b.Q apportionment factor increases c.Q apportionment factor decreases d.R apportionment factor increases e.R apportionment factor decreases f.S apportionment factor increases g.S apportionment factor decreases -R adopts an increase in its statutory corporate income tax rates.

Cruz Corporation owns manufacturing facilities in States A,B,and C.A uses a three-factor apportionment formula under which the sales,property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor,based solely on sales. Cruz's operations generated $1,000,000 of apportionable income,and its sales and payroll activity and average property owned in each of the three states is as follows. State A State B State C Totals Sales $400,000 $800,000 $300,000 $1,500,000 Payroll 100,000 150,000 50,000 300,000 Property 200,000 200,000 200,000 600,000 ​ Cruz's apportionable income assigned to C is:

Given the following transactions for the year,determine Comp Corporation's D payroll factor denominator.State D has adopted the principles of UDITPA. Compensation of sales force $ 600,000 Compensation paid to independent contractors 300,000 Compensation paid to managers of nonbusiness rental property 100,000 Total compensation $1,000,000

In international taxation,we discuss income sourcing rules and the permanent establishment doctrine.In multistate taxation,an analogous term might be the "ultimate destination concept." Define this term,and identify at least two of the most important exceptions to the general rule.

You are preparing to make a presentation to a client who has some familiarity with state corporate income tax rules.At a general level,list for the client the principles of multistate tax planning.

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z.José's activities in both states establish nexus for income tax purposes.José's sales,payroll,and property among the states include the following. State X State Z Totals Sales $1,500,000 $1,000,000 $2,500,000 Property 500,000 -0- 500,000 Payroll 2,000,000 -0- 2,000,000 ​ X utilizes an equally weighted three-factor apportionment formula.How much of José's taxable income is apportioned to X?

A(n) ____________________ business operates in concert with its affiliated companies.As a result,the affiliates' data are included in the parent's apportionment computations.

A state sales tax usually falls upon:

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 -Checking the customer's inventory to determine whether a reorder is needed.

Nonbusiness income receives tax-exempt treatment under all state corporate income taxes.

Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.