Exam 16: Multistate Corporate Taxation

When the taxpayer operates in one or more unitary states:

Typically, the state's payroll factor ____________________ (does/does not) include the fringe benefits provided to its sales force.

The throwback rule requires that:

In determining taxable income for state income tax purposes, the Federal NOL deduction typically constitutes a(n) ____________________ modification.

____________________ 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.

Under _____________________, a state is prohibited from taxing a business if the only connection with the state is the solicitation of orders for sales of tangible personal property that are sent outside the state for approval or rejection and, if approved, are filled and shipped by the business from a point outside of the state.

In the apportionment formula, most states assign more than a one-third weight to the ____________________ factor.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B. Both states utilize a three-factor apportionment formula which equally weights sales, property, and payroll. The rates of corporate income tax imposed in A and B are 7% and 10%, respectively. Determine Dott's state income tax liability. B. For the taxable year, the corporation's activities within the two states were as follows. Dott has determined that it is subject to tax in both A and

Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. Bert's M property factor is:

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

Nonbusiness income includes dividends received from investment securities.

Your client wants to reduce its overall state/local income tax rate. It holds income-producing assets of various types, including tangible personal property, rental land and buildings, and high-yield stocks and bonds. How might this taxpayer restructure its operations to achieve the desired tax result?

Bobby and Sally work for the same employer, Wooster Manufacturing. Bobby manages the company's speculative investment portfolio, and Sally is a foreman in the factory. How are the salaries paid to Bobby and Sally treated in computing Wooster's payroll factor? Apply the general UDITPA rules.

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. Trayne's payroll factor for State X is:

Kurt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Kurt's activities establish nexus for income tax purposes in both states. Kurt's sales, payroll, and property among the states include the following. Z utilizes an equally weighted three-factor apportionment formula. Kurt is incorporated in X. How much of Kurt's taxable income is apportioned to Z?

The starting point in computing state taxable income generally is ____________________.

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 $750,000, which includes a $75,000 deduction for state income taxes. During the year, Wailes received $20,000 interest on Federal obligations. X tax law does not allow a deduction for state income tax payments. Wailes' taxable income for X purposes is:

A unitary business is treated as a single entity for state tax purposes, with a combined apportionment formula including data from all of the operations of the business.

Sales/use tax nexus is established for the taxpayer by the sales-solicitation activities of an independent contractor acting on the taxpayer's behalf.

In some states, an S corporation must withhold Federal income tax for its shareholders who ____________________ (are/are not) state residents.