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Exam 16: Multi-State Corporate Taxations

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Question 31

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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.

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By relocating portfolio income into a pa...

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Question 32

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Zhao Company sold an asset on the first day of the tax year for $500,000. Zhao's Federal tax basis for the asset was $300,000. Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $350,000. What adjustment, if any, should be made to Zhao's Federal taxable income in determining the correct taxable income for the typical state?

A) $0
B) ($50,000)
C) $50,000
D) $150,000

E) All of the above
F) C) and D)

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Question 33

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Simpkin Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales. Simpkin's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ ? Simpkin's apportionable income assigned to B is:

Cruz Corporation owns manufacturing facilities in States A, B, and C. A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted. B uses a three-factor apportionment formula under which sales are double-weighted. C employs a single-factor apportionment factor, based solely on sales. Cruz's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ ? Cruz's apportionable income assigned to C is:

A typical U.S. state piggybacks its collections of the corporate income tax, by letting the Federal government collect and remit the corresponding tax to the state.

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

Trayne Corporation's sales office and manufacturing plant are located in State X. Trayne 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 elective 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. Trayne incurred the following personnel costs. $\begin{array} { l r r r } & \text { StateX } & \text { State W } & \text { Totals } \\\text { Wages and sal aries for employees other } & \$ 500,000 & \$ 300,000 & \$ 800,000 \\\text { than officers } & \\ \text { Sal aries for officers } &300,000 & 150,000 & 450,000 \\\text { Contributions to } \S 401 ( \mathrm { k } ) \text { plans } & 200,000 & 50,000 & 250,000 \\\text { Totals } & \mathbf { \$ 1 , 0 0 0 , 0 0 0 } & \mathbf { \$ 5 0 0 , 0 0 0 } & \mathbf { \$ 1 , 5 0 , 0 , 0 0 0 }\end{array}$ Trayne's payroll factor for State X is:

Given the following transactions for the year, determine Comp Corporation's D payroll factor denominator. State D has adopted the principles of UDITPA. $\begin{array} { l r } \text { Compensation of sales force } & \$ 600,000 \\\text { Compensation paid to independent contractors } & 300,000 \\\text { Compensation paid to managers of nonbusiness rental property } & 100,000 \\\text { Total compensation } & \mathbf { \$ 1 , 0 0 0 , 0 0 0 }\end{array}$

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.

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -State-level NOL.

Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S. states. To which state(s)' payroll factor(s) is Sylvia's compensation assigned? Apply the general UDITPA rules.

Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

Anders, a local business, wants your help in making a decision about a large capital investment. To assist your client, list several tax and non-tax implications of the decision.

Typically, the state's payroll factor ____________________ (does/does not) include the salaries and bonuses paid to its corporate executives.

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -State income tax expense.

P.L. 86-272 ____________________ (does/does not) create nexus when the sales representative approves a sale at the customer's location.

A capital stock tax usually is structured as an excise tax imposed on a corporation's "net worth," using financial statement data to compute the tax.

Guilford Corporation is subject to franchise tax in State Z. The tax is imposed at a rate of 2.5% of the taxpayer's net worth that is apportioned to the state by use of a two factor (sales and property equally weighted) formula. The property factor includes real and tangible personal property, valued at net book value at the end of the taxable year. Sixty percent of Guilford's sales are attributable to Z, and $200,000 of the net book value of Guilford's tangible personal property is located in Z. Determine the Z franchise tax payable by Guilford this year, given the following end-of-the year balance sheet. $\begin{array}{lr}\text { Cash} &&\$100,000 \\\text { Equipment} & \$ 800,000 \\\text { Accumulated depreciation}& \underline{(200,000) }&600,000\\\text { Furniture and fixtures} &\$ 150,000 \\\text { Accumulated depreciation} & (50,000) &100,000\\\text {Intangible assets}&&200,000\\\text {Total assets}&&\$1,000,000\\\\\text { Accounts and taxes payable } && \$ 150,000 \\\text { Long-term debt } && 300,000 \\\text { Common stock } && 10,000 \\\text { Additional paid-in capital } && 600,000 \\\text { Retained earnings } && \underline{(60,000) } \\\text { Total liabilities and equity } && \underline{\$ 1,000,000}\end{array}$

A(n) ____________________ business operates in concert with its affiliated companies. As a result, the affiliates' data are included in the parent's apportionment computations.

In ____________________ states, a(n) ____________________ election permits a multinational corporation to elect to limit the reach of the state's taxing jurisdiction to activities occurring within the boundaries of the United States.