Exam 24: Multistate Corporate Taxation

Overall tax liabilities typically ________________ (increase/decrease) if the members of a unitary group begin to include affiliates that generate net operating losses.

Match each of the following events, considered independently, to its likely effect on WillCo's various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S. More than one choice may be correct. a. No change in apportionment factors b. Q apportionment factor increases c. Q apportionment factor decreases d. R apportionment factor increases e. R apportionment factor decreases f. S apportionment factor increases g. S apportionment factor decreases -Q adopts a sales-only apportionment formula.

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

Hill Corporation is subject to tax only in State X. Hill generated the following income and deductions. State income taxes are not deductible for X income tax purposes. a. The starting point in computing the State X income tax base is Federal taxable income. Derive this amount. b. Determine Hill's State X taxable income, assuming that interest on X obligations is exempt from State X income tax. c. Determine Hill's taxable income, assuming that interest on X obligations is subject to State X income tax.

Typically, sales/use taxes constitute about 20 percent of a state's annual tax collections.

Discuss how a multistate business divides up its corporate taxable income among the states in which it operates. Hint: use the terms allocation and apportionment in your comments.

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.

Flint Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Flint's Federal taxable income is $750,000, which includes a $50,000 deduction for state income taxes. During the year, Flint received $10,000 interest on Federal obligations. X tax law does not allow a deduction for state income tax payments. Flint's taxable income for X purposes is:

Application of the unitary principle generally works to the taxpayer's benefit when:

Parent and Junior form a 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:

Several states allow the S corporation to file a(n) ________________ income tax return, usually in the form of a state-by-state spreadsheet, on behalf of its out-of-state shareholders.

Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice. In what areas might your Federal income tax knowledge also be applicable in your new assignment?

Your client, Hamlin Industries, wants to reduce its overall state/local income tax liability. Hamlin holds income- producing assets of various types, including tangible personal property, rental land and buildings, and high-yield stocks and bonds. You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time. What device might Hamlin use in a restructuring of its operations to achieve the desired tax result? Be specific.

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

Generally, a taxpayer's business income is:

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.

Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the averag 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 State M property factor is:

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

Public Law 86-272:

Net Corporation's sales office and manufacturing plant are located in State X. Net 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 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. Net incurred the following personnel costs. Net's payroll factor for State W is: