Question 1

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

Accepted Answer

A) True 
 B)False

Question 2

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:

Accepted Answer

A) $810,000. 
B) $800,000. 
C) $790,000. 
D) $750,000.

Question 3

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected.
-Computing services purchased by a business.

Accepted Answer

A) Taxable 
B) Not taxable

Question 4

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.
-WillCo completes the construction of production facilities in S.

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected.
-Groceries purchased by an individual and taken home for meal preparation there.

Accepted Answer

A) Taxable 
B) Not taxable

Question 9

Milt Corporation owns and operates two facilities that manufacture paper products. One of the facilities is located in State D, and the other is located in State E. Milt generated $1,200,000 of taxable income, comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from the sale of nonbusiness property located in E. E does not distinguish between business and nonbusiness property. D apportions business income. Milt's activities within the two states are outlined below.
​ $$\begin{array} { l r r r } 
& \text { State D } & \text { State E } & \text { T otal } \
\text { Sales of paper products } & \$ 4,500,000 & \$ 1,500,000 & \$ 6,000,000 \
\text { Property } & 3,500,000 & 2,500,000 & 6,000,000 \
\text { Payroll } & 1,500,000 & 1,000,000 & 2,500,000
\end{array}$$ ​
Both D and E utilize a three-factor apportionment formula, under which sales, property, and payroll are equally weighted. Determine the amount of Milt's income that is subject to income tax by each state.

Accepted Answer

The answer of Milt Corporation owns and operates two facilities...

Question 10

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

Accepted Answer

A) Inspection by a sales employee of the customer's inventory for specific product lines. 
B) Using a manufacturer's representative for the taxpayer through a sales office in the state. 
C) Executing a sales campaign, using an advertising agency acting as an independent contractor for the taxpayer. 
D) Maintenance of inventory in the state by an independent contractor under a consignment plan.

Question 11

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.

Accepted Answer

The answer of You are preparing to make a presentation...

Question 12

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected.
-A garment purchased for resale.

Accepted Answer

A) Taxable 
B) Not taxable

Question 13

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.

Accepted Answer

The answer of When a _________________________ is in effect, out-of-state...

Question 14

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

Accepted Answer

A) Sale of office equipment that is used in the taxpayer's business. 
B) Sale of office equipment that constitutes inventory to the purchaser. 
C) Sale of a warehouse used in the taxpayer's business. 
D) All of the above are protected by P.L. 86-272 immunity provisions.

Question 15

In most states, legal and accounting services are exempt from the sales/use tax base.

Accepted Answer

A) True 
 B)False

Question 16

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. $\begin{array}{lrrr} 
& \text { StateX } & \text { StateZ } & \text { Totals } \
\text { Sales } & \$ 1,500,000 & \$ 1,000,000 & \$ 2,500,000 \
\text { Property } & 500,000 & -0- & 500,000 \
\text { Payroll } & 2,000,000 & -0- & 2,000,000
\end{array}$ ? Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

Accepted Answer

A) $1,000,000 
B) $900,000 
C) $180,000 
D) $0

Question 17

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.

Accepted Answer

The answer of In international taxation, we discuss income sourcing...

Question 18

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

Accepted Answer

The answer of Almost all of the states allow ____________________...

Question 19

Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average 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.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Account Balances at Beginning of Year }$
$\begin{array}{lrrr} 
& \text { State } M & \text { State } O & \text { Totals } \
\text { Inventories } & \$ 200,000 & \$ 300,000 & \$ 500,000 \
\text { Buil ding \& machinery (cost) } & 700,000 & 300,000 & 1,000,000 \
\text { Accumulated depreciation } & (150,000) & (50,000) & (200,000) \
\text { Land } & \underline{400,000} & \underline{200,000} & \underline{600,000} \
\text { Totals } & \underline{\$ 1,150,000} & \underline{\$ 750,000} & \underline{\$ 1,900,000}
\end{array}$

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Account Balances at Year- End }$
$\begin{array}{lrrr} 
& \text { Sate } M & \text { State O } & \text { Totals } \
\text { Inventories } & \$ 400,000 & \$ 100,000 & \$ 500,000 \
\text { Buil ding \& machinery (cost) } & 800,000 & 500,000 & 1,300,000 \
\text { Accumulated depreciation } & (300,000) & (100,000) & (400,000) \
\text { Land } & \underline{400,000} & \underline{\mathbf{\$ 0 0 , 0 0 0}} & \underline{600,000} \
\text { Totals } & \underline{\mathbf{\$ 3 0 0 , 0 0 0}} & \underline{\mathbf{\$ 0 0 , 0 0 0}} & \underline{\mathbf{\$ 2 , 0 0 0 , 0 0 0}} \\
\text { Annual rent payments } & \underline{\mathbf{\$ 5 0 , 0 0 0}} & \underline{\mathbf{\$ 2 5 , 0 0 0}}
\end{array}$ Bert's State M property factor is:

Accepted Answer

A) 75.0%. 
B) 66.7%. 
C) 64.9%. 
D) 64.5%.

Question 20

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) ____________________ modification.

Accepted Answer

The answer of In determining taxable income for state income...

Exam 16: Multi-State Corporate Taxations

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Computing services purchased by a business.

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

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.

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

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Groceries purchased by an individual and taken home for meal preparation there.

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

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.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A garment purchased for resale.

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.

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

In most states, legal and accounting services are exempt from the sales/use tax base.

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.

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

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) ____________________ modification.