Exam 16: Multistate Corporate Taxation

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.

Ting, a regional sales manager, works from her office in State W. Her region includes several states, as indicated in the sales report below. Determine how much of Ting's $300,000 compensation is assigned to the payroll factor of State W.

Determine Drieser's sales factors for States K, M, and N. Drieser Corporation's manufacturing facility, distribution center, and retail store are located in State K. Drieser sells its products to residents located in States K, M, and N. Sales to residents of K are conducted through a retail store. Sales to residents of M are obtained by Drieser's sales representative, who has the authority to solicit, accept, and approve sales orders in State M. Residents of N can purchase Drieser's product only if they place an order online and arrange to take delivery of the product at Drieser's shipping dock. Drieser's activities within the three states are limited to those described above. All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales, property, and payroll are equally weighted. State K sources dock sales to the destination state.

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following. X utilizes a sales­only factor in its three­factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

Under Public Law 86-272, a state is prohibited from taxing a business if the only connection with the state is the of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

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 -Carrying a free sample of a product to the customer's premises.

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

A capital stock tax usually is structured as an excise tax imposed on a corporation's "net worth," using financial statement data to compute the tax.

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.

Compute Still Corporation's State Q taxable income and tax liability for the year.

Franz Corporation is based in State A (corporate income tax rate 10%). It sells its goods to customers in both A and State B (corporate income tax rate 4%). Franz's state taxable income for the year is $1 million, 45% of which relates to B customers. Franz's level of activities in B is insufficient to create nexus there, but A has adopted a throwback rule as to multistate sales. Would Franz reduce its total state income tax liability by creating nexus with B, say by allowing its sales force to make credit decisions? Elaborate.

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

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 B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator?

A number of court cases in the last several decades have involved the application of a state's nexus rules concerning a business taxpayer. What is the significance of the term nexus when discussing state income taxation?

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

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.

Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

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

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

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 -Computer software, in the form of a disk purchased by an individual at a rummage sale.