Question 1

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

Accepted Answer

The answer of Overall tax liabilities typically ________________ (increase/decrease) if...

Question 2

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.

Accepted Answer

The answer of Match each of the following events, considered...

Question 3

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:

Accepted Answer

A)  Move its home office from B to A. 
B)  Remove all stored inventory from A. 
C)  Establish a personal training center in A. 
D)  Convert to employee status the independent contractors that it uses to sell widgets in A.

Question 4

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.

Accepted Answer

The answer of Hill Corporation is subject to tax only...

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

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.

Accepted Answer

The answer of Discuss how a multistate business divides up...

Question 7

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.

Accepted Answer

A)  $0. 
B)  $90,000. 
C)  $120,000. 
D)  $300,000.

Question 8

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 9

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

Accepted Answer

A)  The other affiliates generate net operating losses. 
B)  The other affiliates operate in low-tax states. 
C)  Both a. and b. 
D)  Neither a. nor b.

Question 10

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:

Accepted Answer

A)  Execute an intercompany loan, such that Junior pays deductible interest to Parent. 
B)  Have Parent charge Junior an annual management fee. 
C)  Shift Parent's high-cost assembly and distribution operations to Junior. 
D)  All of the above are effective income-shifting techniques for a unitary group. 
E)  None of the above is an effective income-shifting technique for a unitary group.

Question 11

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.

Accepted Answer

The answer of Several states allow the S corporation to...

Question 12

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?

Accepted Answer

The answer of Your supervisor has shifted your responsibilities from...

Question 13

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.

Accepted Answer

The answer of Your client, Hamlin Industries, wants to reduce...

Question 14

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

Accepted Answer

A)  Order solicitation for a plot of real estate, approved and filled from another state. 
B)  Order solicitation for a computer, approved and filled from another state. 
C)  Order solicitation for a machine, with credit approval from another state. 
D)  The conduct of a training seminar for sales personnel as to how to install and operate a new software product.

Question 15

Generally, a taxpayer's business income is:

Accepted Answer

A)  Apportioned. 
B)  Allocated. 
C)  Both a. and b. 
D)  Neither a. nor b.

Question 16

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.

Accepted Answer

The answer of Match each of the following items with...

Question 17

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:

Accepted Answer

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Public Law 86-272:

Accepted Answer

A)  Was written by the Multistate Tax Commission. 
B)  Provides nexus definitions for sales of stocks and bonds. 
C)  Provides nexus definitions for the sale of medical and legal services. 
D)  Was adopted by Congress.

Question 20

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:

Accepted Answer

A)  50.00%. 
B)  37.50%. 
C)  33.33%. 
D)  0.00%.

Exam 24: Multistate Corporate Taxation