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Exam 12: State and Local Taxes

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Question 41

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Bethesda Corporation is unprotected from income tax by Public Law 86-272. Which of the following characteristics creates a problem for Bethesda in states other than Maryland?

A) Bethesda does business in Maryland and five other states.
B) Bethesda sells copier equipment and copy center services.
C) All orders are approved in Maryland.
D) All in-state services are limited to solicitation in states other than MarylanD.The sale of services is not a protected activity.

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

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Question 42

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In Complete Auto Transit the court determined eight criteria for determining whether a state can tax a nondomiciliary company.

A) True
B) False

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Question 43

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The throwback rule includes inventory in transit in the numerator of the state from where it was shipped.

The annual value of rented property is not included in the property factor. The annual value of rental property is multiplied by eight and then added to the property factor.

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

The Mobil decision identified three factors to determine whether a group of companies are unitary.

Business income is allocated to the state of commercial domicile. Business income is apportioned based on the extent of business's activity and property in various states.

Which of the items is correct regarding a use tax?

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has sales as follows: Assume that Tennis Pro's other sales include $150,000 of sales to a federal government entity that was shipped from Virginia to Maryland. What is Tennis Pro's Virginia sales numerator and sales factor?

Which of the following law types is not a primary source type?

What was the Supreme Court's holding in Complete Auto Transit?

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. The Shop sells, manufacturers, and customizes tennis racquets for serious amateurs. Virginia has a 5 percent sales tax. Assume that a District of Columbia customer picks up a $2,000 racquet order in the Blacksburg store and drives it back to the District of Columbia (where the sales tax rate is 8.5 percent). Determine the sales and use tax liability (assume the Shop has no sales personnel or property in District of Columbia) of the customer?

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

Which of the following is not a general rule for calculating the property factor?

Historically, most states used an equally weighted three-factor apportionment formula.

Rental income is allocated to the state of commercial domicile. Allocate rental income to the state where the rental property is located.

Most services are sourced to the state where the services were performed.

The trade-show rule allows businesses to maintain a sample room for up to four weeks per year. The time limit is typically two weeks or less.

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress that is shipped to her Maryland residence using a common carrier. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax liability?

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