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Exam 16: Multistate Corporate Taxation

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Question 1

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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. X utilizes an equally weighted three­factor apportionment formula. How much of José's taxable income is apportioned to X?

A) $120,000
B) $450,000
C) $780,000
D) $900,000

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

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Allocation is a method under which a corporation's income is directly assigned to the specific states where the income is derived.

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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 -Purchasing ads that show up on search-result screens for internet browsers.

Sales/use tax nexus is established for the taxpayer by the sales-solicitation activities of an independent contractor acting on the taxpayer's behalf.

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.

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

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 -Treasury Bond interest income.

In most states, a limited liability company (LLC) is subject to the state income tax:

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

S corporations flow-through income amounts to its shareholders, and most states require a withholding of shareholder taxes on the allocated amounts.

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. Z utilizes a double­weighted sales factor in its three­factor apportionment formula. How much of José's taxable income is apportioned to Z?

Typically, a sales/use tax is applied to a retail sale of ____________________ property.

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 -A garment purchased for resale.

The model law relating to the assignment of income among the states for corporations is:

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

List at least five items that are included in the payroll factor of a typical state. Consider all forms of compensation that an employee might receive. Apply the general UDITPA rules.

Trayne Corporation's sales office and manufacturing plant are located in State X. Trayne 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 elective 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. Trayne incurred the following personnel costs. Trayne's payroll factor for State X is:

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 $2,000,000 from its business, municipal bond interest of $150,000, taxable interest of $150,000, 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.

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

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