Exam 24: Multistate Corporate Taxation

A state can levy an income tax on a business only if the business was incorporated in the state.

The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.

Identify some state/local income tax issues facing pass-through entities such as S corporations, partnerships, and LLCs.

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. Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

List at least five items that are included in the payroll factor of a typical state. Consider all forms of compensation that an employee might receive. Apply the general UDITPA rules.

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. X utilizes an equally weighted three-factor apportionment formula. How much of José's taxable income is apportioned to X?

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

All of the U.S. states use an apportionment formula based on the sales, property, and payroll factors.

State Q wants to increase its income tax collections, but politically it would be unwise to raise taxes on in-state individuals or businesses. Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula. Q allocates nonbusiness income amounts. Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

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 a self-employed actress.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and 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 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.

Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S. states. To which state(s)' payroll factor(s) is Sylvia's compensation assigned? Apply the general UDITPA rules.

A service engineer spends 80% of her time maintaining the employer's productive business property, and 20% maintaining the employer's nonbusiness rental properties. This year, her compensation totaled $90,000. The payroll factor assigns $90,000 to the state in which the employer is based.

What is the significance of the term nexus when discussing state income taxation?

Parent Corporation owns all of the stock of Junior Corporation, a Delaware passive investment company. Parent operates strictly in nonunitary State B, which levies a 9% income tax. This year, Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent. In which state(s) will the interest income create an income tax liability?

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

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

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?

Adams 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, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y. Adams's income attributed to X is: