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Exam 16: Multistate Corporate Taxation

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Question 31

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Troy, an S corporation, is subject to tax only in State A. On Schedule K of its Federal Form 1120S, Troy reported ordinary income of $2,500,000 from its business, municipal bond interest of $50,000, taxable interest of $100,000, and charitable contributions of $300,000. A does not recognize S status, but it does follow the Federal provisions with respect to the determination of taxable income for a corporation. Determine Troy's A taxable income.

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Since A does not recognize S c...

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Question 32

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Peete Corporation is subject to franchise tax in State Z. The tax is imposed at a rate of 2% 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. Eighty percent of Peete's sales are attributable to Z, and $200,000 of the net book value of Peete's tangible personal property is located in Z. Determine the Z franchise tax payable by Peete this year, given the following end-of-the year balance sheet.

A) $0, due to the negative retained earnings.
B) $20,000.
C) $7,200.
D) $4,860.

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

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Question 33

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Leased property, when included in the property factor, usually is valued at ____________________ times its annual rental, even though the taxpayer does not own the asset. or

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

Hambone Corporation is subject to the State E capital stock tax. The tax is levied at 2% of the entity's net worth that is apportioned to E. Hambone conducts 30% of its operations in E. Hambone's current book balance sheet is as follows, with amounts in millions. Compute Hambone's liability for the E capital stock tax.

Norman 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, Norman has rented 20% of its Y facility to an unaffiliated corporation. Norman generated $1,000,000 net rental income and $2,000,000 income from manufacturing. Norman is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Norman determined that its apportionment factors are .65 for X and .35 for Y. Norman's income attributed to X is:

Almost all of the states assess some form of consumer-level sales/use tax.

Given the following transactions for the year, determine Comp Corporation's D payroll factor denominator. State D has adopted the principles of UDITPA.

A state might levy a(n) ____________________ tax when an investor sells shares of stock. or

Parent and Junior form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

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

The sale of a prescription medicine probably is exempt from sales/use tax under the _________________________ rule.

In most states, medical services are exempt from the sales/use tax base.

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.

S corporations must withhold taxes on the portions of the entity's income allocated to its out-of-state shareholders.

Provide the required information for Wren Corporation, whose Federal taxable income totals $100 million. Wren apportions 60% of its business income to State C. Wren generates $10 million of nonbusiness income each year. Forty percent of that income is attributable to rentals of buildings located in C. Wren's business income this year totals $60 million.

P.L. 86-272 ____________________ (does/does not) create nexus when the seller runs a booth with inventory samples, at a one-week trade show in the state.

Federal taxable income is used as the starting point in computing the state's income tax base, but numerous state adjustments or modifications generally are required to:

Slattery Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 4% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Slattery should:

The typical state sales/use tax falls on sales of both real and personal property.