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Exam 24: Multistate Corporate Taxation

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Question 21

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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. State Sales Generated Ting's Time Spent There U $ 1,000,000 15% V 5,000,000 55% W 4,000,000 30% $10,000,000 100%

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

E) A) and C)
F) A) and B)

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Question 22

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____________________ (does/does not) create nexus when the sales representative approves a sale at the customer's location.

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Question 23

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____________________ 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.

You are completing the State A income tax return for Quaint Company,LLC.Quaint operates in various states,showing the following results. Ordinary income $800,000 Net capital loss (60,000) Interest income,IBM bond 40,000 In A,all interest is treated as business income.A uses a sales-only apportionment factor.Compute Quaint's A taxable income. ​ State A All Other States Total Sales $800,000 $1,200,000 $2,000,000 Property (average cost) 250,000 2,000,000 2,250,000 Payroll 300,000 700,000 1,000,000

The starting point in computing state taxable income generally is ____________________.

Mercy Corporation,headquartered in State F,sells wireless computer devices,including keyboards and bar code readers.Mercy's degree of operations is sufficient to establish nexus only in States E and F.Determine its sales factor in those states. State E applies a throwback rule to sales,while State F does not.State G has not adopted an income tax to date.Mercy reported the following sales for the year.All of the goods were shipped from Mercy's F manufacturing facilities. Customer Customer's Location This Year's Sales NorCo E $ 60,000,000 Tools,Inc. F 20,000,000 UniBell G 50,000,000 U.S.Department of Defense All 50 U.S.States 20,000,000 Total $150,000,000

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:

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. State X State W Totals Wages and salaries for employees other than officers $ 500,000 $300,000 $ 800,000 Salaries for officers 300,000 150,000 450,000 Contributions to § 401(k) plans 200,000 50,000 250,000 Totals $1,000,000 $500,000 $1,500,000 Net's payroll factor for State W is:

In most states,a limited liability company (LLC) is subject to the state income tax:

____________________ (does/does not) create nexus when the seller inserts advertising flyers into the Sunday newspaper that is sold in the state.

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.

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 -Owning a tablet computer that is used on sales trips to the state.

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

In the apportionment formula,most states assign more than a one-third weight to the ____________________ factor.

A ____________________ tax is designed to complement the local sales tax structure,to prevent the consumer from making no- or low-tax purchases in another state,outside the U.S. ,or online,and then bringing the asset into the state.

Typically included in the sales/use tax base is the purchase of tablet computers and cell phone equipment by a large manufacturing firm,whose sales force uses the items.

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.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B.For the taxable year,the corporation's activities within the two states were as follows. ​ State A State B Total Sales $500,000 $1,500,000 $2,000,000 Property 250,000 -0- 250,000 Payroll 200,000 300,000 500,000 ​ Dott has determined that it is subject to tax in both A and B.Both states utilize a three-factor apportionment formula which equally weights sales,property,and payroll.The rates of corporate income tax imposed in A and B are 7% and 10%,respectively.Determine Dott's state income tax liability.

Bobby and Sally work for the same employer,Wooster Manufacturing,which makes brushes for artists and painters.Bobby spends one-half of his time managing the company's speculative investment portfolio,and the other half working with the corporate treasurer in securing cash flow for manufacturing payrolls.Sally is a foreman in the brush factory. How are the salaries paid to Bobby and Sally treated in computing Wooster's payroll factor? Apply the general UDITPA rules.

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.