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Exam 16: Multi-State Corporate Taxations

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Question 41

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

A) True
B) False

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Question 42

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In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

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B) False

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Question 43

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Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. -Dividend income from P & G stock held.

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

Several states allow the S corporation to file a(n) ____________________ income tax return, usually in the form of a state-by-state spreadsheet, on behalf of its out-of-state shareholders.

A taxpayer has nexus with a state for sales and use tax purposes if it has a physical presence in the state.

Parent Corporation owns all of the stock of Junior Corporation, a Delaware passive investment company. Parent operates strictly in nonunitary State B, which levies a 9% income tax. This year, Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent. In which state(s) will the interest income create an income tax liability?

Marquardt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Marquardt's activities establish nexus for income tax purposes in both states. Marquardt's sales, payroll, and property among the states include the following. $\begin{array}{ccc}&\text { StateX } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,000,000 & \$ 3,000,000 & \$ 4,000,000 \\\text { Property } & 2,000,000 & -0- & 2,000,000 \\\text { Payroll } & 1,000,000 & -0- & 1,000,000\end{array}$ Z utilizes an equally weighted three-factor apportionment formula. Marquardt is incorporated in X. How much of Marquardt's taxable income is apportioned to Z?

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. $\begin{array} { l r r r } & \text { StateX } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,500,000 & \$ 1,000,000 & \$ 2,500,000 \\\text { Property } & 500,000 & - 0 - & 500,000 \\\text { Payroll } & 2,000,000 & - 0 - & 2,000,000\end{array}$ ? X utilizes an equally weighted three-factor apportionment formula. How much of José's taxable income is apportioned to X?

Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.

Typical indicators of income-tax nexus include the presence of customers in the state.

Pail Corporation is a merchandiser. It purchases overstock garments from various suppliers and sells the goods in its State L retail store. Determine the total sales that are subject to the L sales tax. $\begin{array} { l r } \text {Sales to L residents }&\$600,000\\\text { Sales to homeless shel ter operated by a local church } & 80,000 \\\text { Sales to residents who cross the border from nearby State M } & 100,000 \\\text { Sales to a similar merchandiser, located in another L town } & 20,000\end{array}$

Match each of the following events, considered independently, to its likely effect on WillCo's various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S. More than one choice may be correct. -Q adopts a throwback rule.

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

All of the U.S. states have adopted a tax based on the net taxable income of corporations.

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

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

In determining taxable income for state income tax purposes, interest income from Federal bonds typically constitutes a(n) ____________________ modification.

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

Identify some state/local income tax issues facing pass-through entities such as S corporations, partnerships, and LLCs.