Exam 15: Multistate Corporate Taxation

State A applies a throwback rule.General Corporation is taxable in a number of states and made a $100,000 sale from its A headquarters to an agency of the U.S.government.In which state(s)will the sale be included in the sales factor?

Typically exempt from the sales/use tax base is the purchase of inventory from a competitor who is closing down a long-lived business.

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 -T-shirts purchased by an individual at a rummage sale

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 meal eaten at the restaurant

Using sales-factor-only apportionment typically assigns a ____________________ (larger/smaller)percentage of an out-of-state corporation's income to tax in the state.

Condor Corporation generated $450,000 of state taxable income from selling its product in States A and B.For the taxable year,the corporation's activities within the two states were as follows. Condor has determined that it is subject to tax in both A and B.Both states utilize a three-factor apportionment formula that equally weights sales,property,and payroll.The rates of corporate income tax imposed in A and B are 10% and 6%,respectively.Determine Condor's state income tax liability.

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 -Accounting services purchased by a business

States collect the most tax dollars from the sales/use tax.

Kim Corporation,a calendar year taxpayer,has manufacturing facilities in States A and B.A summary of Kim's property holdings follows. *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.

Nonbusiness income includes rentals of investment property.

In most states,a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact,and allocated according to the location of property owned or used.

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

Corolla 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. Corolla'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. Corolla's apportionable income assigned to B is:

When the taxpayer has exposure to a capital stock tax:

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 -Approving a sales order

In unitary states,a(n)____________________ ____________________ provision permits a multinational corporation to elect to limit the reach of the state's taxing jurisdiction to activities occurring within the boundaries of the United States.

Fowl Corporation's entire operations are located in State A.Seventy-five percent ($900,000)of Fowl's sales are made in A and the remaining sales ($300,000)are made in State B.Fowl's activities in B are not sufficient to create nexus in that state.If A has adopted a throwback rule,the numerator of the A sales factor is:

____________________ describe(s)the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an entity's income.

Give two exceptions that the states have developed,deviating from the strict three-factor apportionment formula for business income.

Provide the required information for Wren Corporation,whose Federal taxable income totals $20 million.Wren apportions 80% of its taxable income to State C.Wren generates $4 million of nonbusiness income each year.Twenty percent of that income is due to rentals of buildings located in C.Wren's business income this year is $50 million. a.State C taxes how much of Wren's business income? b.State C taxes how much of Wren's nonbusiness income? c.Explain your results.