Exam 24: Multistate Corporate Taxation

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

The sales/use tax that is employed by most U.S. states does not fall on all retail transactions. Identify at least five sales/use tax exemptions that states often allow, eliminating certain transactions from the tax base.

In most states, a consolidated corporate income tax return:

Almost all of the states allow ________________ treatment to an LLC for income tax purposes.

P.L. 86-272________________ (does/does not) create nexus when the sales representative approves a sale at the customer's location.

An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000. The payroll factor assigns $65,000 for this employee.

A taxpayer has nexus with a state for sales and use tax purposes if it has a physical presence in the state.

Guilford Corporation is subject to franchise tax in State Z. The tax is imposed at a rate of 2.5% of the taxpayer's net worth that is apportioned to the state by use of a two factor (sales and property equally weighted) formula. The property factor includes real and tangible personal property, valued at net book value at the end of the taxable year. Sixty percent of Guilford's sales are attributable to Z, and $200,000 of the net book value of Guilford's tangible personal property is located in Z. Determine the Z franchise tax payable by Guilford this year, given the following end-of-the year balance sheet.

Generally, nonapportionable income includes:

Hopper Corporation's property holdings in State E are as follows. Compute the numerator of Hopper's E property factor.

Typically, a sales/use tax is applied to a retail sale of ________________ property.

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 -Checking the customer's inventory to determine whether a reorder is needed.

For sales/use tax purposes, nexus usually requires that:

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.

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

When a ________________ is in effect, out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.

S corporations flow-through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

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?

Britta Corporation's entire operations are located in State a. Eighty percent ($800,000) of Britta's sales are made in A and the remaining sales ($200,000) are made in State B. B has not adopted a corporate income tax. If A has adopted a throwback rule, the numerator of Britta's A sales factor is:

A typical U.S. state piggybacks its collections of the corporate income tax, by letting the Federal government collect and remit the corresponding tax to the state.