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Exam 16: Multistate Corporate Taxation

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Question 61

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When the taxpayer operates in one or more unitary states:

A) Apportionment factors are computed on a group-wide basis.
B) The tax incentive of creating nexus in a low-tax state is enhanced.
C) The tax benefit of a passive investment subsidiary holding company is neutralized.
D) The use of a water's edge election should be considered.
E) All of the above are true.

F) C) and D)
G) A) and C)

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Question 62

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Roughly five percent of all taxes paid by businesses in the U.S. are to state, local, and municipal jurisdictions.

A) True
B) False

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Question 63

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State Q has adopted sales-factor-only apportionment for its corporate income tax. As a result, a (larger/smaller) percentage of an out­of­state corporation's income is assigned to tax in the state.

Match each of the following terms with the appropriate description, in the state income tax formula. Apply the UDITPA rules in your responses. a. Addition modification b. Subtraction modification c. No modification -State-level NOL.

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

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. a. No change in apportionment factors b. Q apportionment factor increases c. Q apportionment factor decreases d. R apportionment factor increases e. R apportionment factor decreases f. S apportionment factor increases g. S apportionment factor decreases -Q adopts a sales-only apportionment formula.

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:

The throwback rule requires that:

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

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. a. More than solicitation, creates nexus b. Solicitation only, no nexus created -Checking the customer's inventory to determine whether a reorder is needed.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. a. Taxable b. Not taxable -Groceries purchased by a consumer and taken home for preparation there.

A unitary business applies a combined apportionment formula, including data from operations of all of the affiliates.

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. a. No change in apportionment factors b. Q apportionment factor increases c. Q apportionment factor decreases d. R apportionment factor increases e. R apportionment factor decreases f. S apportionment factor increases g. S apportionment factor decreases -R adopts an increase in its statutory corporate income tax rates.

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

When the taxpayer has exposure to a capital stock tax:

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

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to an agency of the U.S. government. State A applies a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

State Q wants to increase its income tax collections, but politically it would be unwise to raise taxes on in-state individuals or businesses. Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula. Q allocates nonbusiness income amounts. Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

Overall tax liabilities typically (increase/decrease) if the members of a unitary group begin to include affiliates that generate net operating losses.

Most states' consumer sales taxes are paid by the final purchaser of the taxable asset.