Exam 15: Multistate Corporate Taxation

Milt Corporation owns and operates two facilities that manufacture paper products.One of the facilities is located in State D,and the other is located in State E.Milt generated $1,500,000 of taxable income,comprised of $1,000,000 of income from its manufacturing facilities and a $500,000 gain from the sale of nonbusiness property located in E.E does not distinguish between business and nonbusiness property,but D limits apportionable income to business income.Milt's activities within the two states are outlined below. Both D and E utilize a three-factor apportionment formula,under which sales,property,and payroll are equally weighted.Determine the amount of Milt's income that is subject to income tax by each state.

The ____________________ tax usually is applied at the city or county level,as its main source of revenue.

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Excessive state depreciation deduction

Typically exempt from the sales/use tax base is the purchase of office supplies by a large clothing retailer that is incorporated in the state.

List some of the most commonly encountered exemptions from the tax base for state and local sales and use taxes.

Dough Company sold an asset on the first day of the tax year for $100,000.Dough's tax basis for the asset was $60,000.Because of differences in cost recovery schedules,the state regular-tax basis in the asset was $40,000.What adjustment,if any,should be made to Federal taxable income in determining the correct taxable income for the typical state?

The use tax is designed to complement the sales tax.A use tax typically covers purchases made out of state and brought into the jurisdiction.

Which of the following is not immune from state income taxation,even if P.L.86-272 is in effect?

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

In determining taxable income for state income tax purposes,a Federal NOL deduction may constitute a(n)____________________ modification.

A city might assess a professional occupation tax on an architect.

Most states' consumer sales taxes apply directly to the final purchaser of the taxable asset,with the purchaser remitting the tax to the state treasury.

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 actress

Wailes Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Wailes' Federal taxable income is $650,000,which includes a $60,000 deduction for state income taxes.During the year,Wailes received $50,000 interest on Federal obligations.X does not allow a deduction for state income tax payments. Wailes' taxable income for X purposes is:

The sale of a used auto probably is exempt from sales/use tax under the ____________________ ____________________ rule.

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 -Operating an office to interview and hire employees

In some states,there is a "business privilege" tax,based on net taxable income.

Parent and Junior form a non-unitary group of corporations.Parent is located in a state with an effective tax rate of 3%,while Junior's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities,the group should:

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

Norman Corporation owns and operates two manufacturing facilities,one in State X and the other in State Y.Due to a temporary decline in the corporation's sales,Norman has rented 20% of its Y facility to an unaffiliated corporation.Norman generated $600,000 net rental income and $2,400,000 income from manufacturing. For X and Y purposes,rental income is classified as allocable nonbusiness income.By applying the statutes of each state,Norman determined that its apportionment factors are .75 for X and .25 for Y. Norman's income attributed to X is: