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Exam 12: State and Local Taxes

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Question 1

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Immaterial violations of the solicitation rules automatically create income tax nexus.

A) True
B) False

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Question 2

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Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro decides to expand into Pennsylvania during the current year and try some new sales techniques. Tennis Pro advertises on local radio and television as well as in national tennis magazines sent into Pennsylvania. Salespeople give away promotional materials and occasionally sell demonstration models to local shop employees to build goodwill for Tennis Pro. Tennis Pro holds sales meetings at rented space in local hotels. Personnel occasionally fix minor problems such as tape and strings without charge. One employee performed a credit check for a major account that needed merchandise immediately. Each salesperson is allowed an allowance for a car and office equipment to be maintained in an in-home office. Do any of Tennis Pro's activities have the potential to create income tax nexus?

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The sale of demonstration models, the re...

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Question 3

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Carolina's Hats has the following sales, payroll, and property factors: What is Carolina's Hats North and South Carolina apportionment factors if North Carolina uses an equally weighted three-factor formula and South Carolina uses a double-weighted sales factor formula? (Round your answers to two decimal places.)

All states employ some combination of sales and use tax, income or franchise tax, or property tax to fund their government operations.

Business income includes all income earned in the ordinary course of business.

Separate-return states require each member of a consolidated group with income tax nexus to file their own state income tax return.

Mahre, Incorporated, a New York corporation, runs ski tours in several states. Mahre also has a New York retail store and an Internet store, which ships to out-of-state customers. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: Assume the following sales tax rates: Alaska (0 percent) , Colorado (7.75 percent) , Maine (8.5 percent) , New Hampshire (6.75 percent) , New York (8 percent) , and Vermont (5 percent) . How much sales and use tax must Mahre collect and remit in Maine?

PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: PWD's federal taxable income was $100,000. Calculate PWD's Illinois state tax base.

Businesses subject to income tax in more than one jurisdiction have the right to apportionment.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has property as follows: Tennis Pro also rents Virginia property at an annual rent of $24,000. What is Tennis Pro's Virginia property numerator and property factor? (Round interim calculations to the nearest whole number and the property factor to two decimal places.)

Most state tax laws adopt the federal tax law as of a specific date in time.

Which of the following isn't a criterion used to determine whether a unitary relationship exists?

On which of the following transactions should sales tax generally be collected?

Public Law 86-272 protects only companies selling tangible personal property.

The Wayfair decision reversed the Quill decision, which had affirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

In Complete Auto Transit the U.S. Supreme Court determined eight criteria for determining whether a state can tax a nondomiciliary company.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufactures, and customizes tennis racquets for serious amateurs. Tennis Pro's business has expanded significantly over the last few years. Currently, it has sales personnel in 9 states (Virginia, North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, and New Jersey) and the District of Columbia. All sales activity in all of these states is limited to solicitation. Orders are received by the sales team and forwarded to Blacksburg for approval. All orders are sent by common carrier to customers. Tennis Pro owns retail and warehouse space in Virginia and has another warehouse in Kentucky. Is Tennis Pro subject to Ohio's Commercial Activity Tax (a nonincome-based tax)?

Federal/state adjustments correct for differences between two states' tax laws.

Public Law 86-272 protects certain business activities from creating income tax nexus.

Failure by a seller to collect and remit sales taxes often results in a larger tax liability than failure to pay income taxes.