Exam 24: Multistate Corporate Taxation

The property factor includes business assets that the taxpayer owns, but also those merely used under a lease agreement.

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 sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

Hambone Corporation is subject to the State E capital stock tax. The tax is levied at 2% of the entity's net worth that is apportioned to E. Hambone conducts 30% of its operations in State E. Hambone's current book balance sheet is as follows, with amounts in millions. Compute Hambone's liability for the E capital stock tax.

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.

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 -Deduction for advertising expenditures.

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 equipment purchased by a charity.

Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's "garage sale."

In computing the property factor, property owned by the corporation typically is valued at its ________________, but without adjusting for depreciation.

________________ describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out-of-state entity's income.

Compost Corporation has finished its computation of Federal taxable income. In State Q, the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications. List at least five such modifications that Compost is likely to encounter. In this regard, follow the general UDITPA rules, and list both addition and subtraction modifications.

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 -Making a decision as to the creditworthiness of customers.

In international taxation, we discuss income sourcing rules and the permanent establishment doctrine. In multistate taxation, an analogous term might be the "ultimate destination concept." Define this term, and identify at least two of the most important exceptions to the general rule.

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 -Treasury Bond interest income.

The ________________ tax levied by a state usually is based on the book value of a corporation's "net worth."

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 textbook purchased by a State University student.

Typical indicators of income-tax nexus include the presence of customers in the state.

Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.

The throwback rule requires that:

In ________________ states, a(n ________________) election permits a multinational corporation to elect to limit the reach of the state's taxing jurisdiction to activities occurring within the boundaries of the United States.

Cruz Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales. Cruz's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows. Cruz's apportionable income assigned to C is: