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Exam 24: Multistate Corporate Taxation

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Question 71

Multiple Choice

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Hopper Corporation's property holdings in State E are as follows. Item Property factor valuation ($M) Manufacturing equipment 100 Land held for potential appreciation 25 Manufacturing equipment that is not currently needed and sits idle 15 Manufacturing equipment that is not currently needed and is leased to another taxpayer 20 Compute the numerator of Hopper's E property factor.

A) $100 million.
B) $135 million.
C) $140 million.
D) $160 million.

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

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Question 72

Multiple Choice

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Parent and Minor form a non-unitary group of corporations.Parent is located in a state with an effective tax rate of 3%,while Minor's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities,the group should:

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

F) A) and B)
G) A) and C)

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Question 73

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

Match each of the following terms with the appropriate description, in the state income tax formul a. Apply the UDITPA rules in your responses. a.Addition modification b.Subtraction modification c.No modification -State income tax expense.

Under Public Law 86-272,a state is prohibited from taxing a business if the only connection with the state is the _____________________ of orders for sales of tangible personal property that are sent outside the state for approval or rejection.

Match each of the following terms with the appropriate description, in the state income tax formul a. Apply the UDITPA rules in your responses. a.Addition modification b.Subtraction modification c.No modification -State-level NOL.

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.

In determining state taxable income,all of the following are adjustments to Federal income except:

The property factor includes land and buildings used for business purposes.

A number of court cases in the last several decades have involved the application of a state's nexus rules concerning a business taxpayer.What is the significance of the term nexus when discussing state income taxation?

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 meal eaten at a restaurant while conducting business.

Roughly five percent of all taxes paid by businesses in the U.S.are to state,local,and municipal jurisdictions.

The individual seller of a used auto should collect and remit sales tax to the state.

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating 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 -Making a decision as to the creditworthiness of customers.

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 -Earthmoving equipment used by the purchaser in construction business.

A use tax applies when a State A resident purchases:

Flip Corporation operates in two states,as indicated below.All goods are manufactured in State A.Determine the sales to be assigned to both states to be used in computing Flip's sales factor for the year.Both states follow the UDITPA and the MTC regulations in this regard. State A State B Gross sales to purchasers in state $420,000 $360,000 Sales returns 9,000 11,000 Discounts allowed 21,000 31,000 Rental income 60,000 * 25,000 ** ​ * Excess warehouse space,seasonal rental to a competitor. ** Land held for speculation.

Most of the U.S.states have adopted an alternative minimum tax,similar to the Federal system,in taxing the income of corporations.

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