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Exam 16: Multistate Corporate Taxation

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Question 91

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In determining taxable income for state income tax purposes, interest income from Federal bonds typically constitutes an)_________ modification.

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Question 92

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The most commonly used state income tax apportionment formula is:

A) Sales factor only.
B) Sales factor double-weighted.
C) Sales factor equally weighted with property and payroll.
D) Payroll factor only.

E) B) and D)
F) None of the above

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Question 93

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Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in a state such as entities with in-state headquarters.

Bert Corporation, a calendar year taxpayer, owns property in States M and O. Both states require that the average value of assets be included in the property factor. State M requires that the property be valued at its historical cost, and State O requires that the property be included in the property factor at its net depreciated book value.

If a gift card is unused after a specified period of time, the state can collect the amount of the card proceeds from the seller as ____________________ property.

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.

The benefits of a passive investment company employed in a nonunitary state typically include:

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:

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. General has not established nexus with State B. State A does not apply a throwback rule. In which states) will the sale be included in the sales factor numerator?

Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's garage sale.

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

Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

_________describes) 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.

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

A taxpayer automatically has nexus with a state for sales and use tax purposes if it has income tax nexus with the same state.

Simpkin Corporation owns manufacturing facilities in States A, B, and C. State A uses a three-factor apportionment formula under which the sales, property, and payroll factors are equally weighted. State B uses a three-factor apportionment formula under which sales are double-weighted. State 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 State B is:

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. This activity is not sufficient for General to create nexus with State B. State A applies a throwback rule but State B does not. In which states) will the sale be included in the sales factor numerator?

In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction modification from Federal income?

Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation's sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are 0.65 for X and 0.35 for Y. Adams's income attributed to X is:

By making a water's edge election, a multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S. and E.U. affiliates.