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Exam 16: Multi-State Corporate Taxations

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Question 91

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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 out-of-state corporation's income is assigned to tax in the state.

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Question 92

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Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice. In what areas might your Federal income tax knowledge also be applicable in your new assignment?

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Question 93

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Apportionment is a means by which a corporation's _________________________ income is divided among the states in which it conducts business.

In most states, Federal S corporations must make a separate state-level election of the flow-through status.

Compute Still Corporation's State Q taxable income and tax liability for the year. $\begin{array} { l r } \text { Addition modifications } & \$ 70,000 \\\text { Allocated income - total } & \$ 80,000 \\\text { Allocated income - State Q } & \$ 60,000 \\\text { Allocated income - State P } & \$ 20,000 \\\text { Apporti onment percentage - State Q } & 40 \% \\\text { Federal taxable income } & \$ 500,000 \\\text { State tax credits } & \$ 11,000 \\\text { Subtraction modifications } & \$ 30,000 \\\text { Tax rate } & 5 \%\end{array}$

In determining state taxable income, all of the following are adjustments to Federal income except:

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. -R adopts an increase in its statutory corporate income tax rates.

In some states, an S corporation must withhold Federal income tax for the proportionate flowthrough income of its shareholders who ____________________ (are/are not) state residents.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B. For the taxable year, the corporation's activities within the two states were as follows. ​ $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Total } \\\text { Sales } & \$ 500,000 & \$ 1,500,000 & \$ 2,000,000 \\\text { Property } & 250,000 & - 0 - & 250,000 \\\text { Payroll } & 200,000 & 300,000 & 500,000\end{array}$ ​ Dott has determined that it is subject to tax in both A and B. Both states utilize a three-factor apportionment formula which equally weights sales, property, and payroll. The rates of corporate income tax imposed in A and B are 7% and 10%, respectively. Determine Dott's state income tax liability.

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. General has not established nexus with B. State A does not apply a throwback rule. In which state(s) will the sale be included in the sales factor numerator?

The individual seller of shares of stock in Facebook is liable for sales tax on the transaction.

In the broadest application of the unitary theory, the U.S. unitary business files a combined tax return using factors and income amounts for all affiliates:

Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A new auto purchased in Europe and shipped by the driver to her home state in the U.S.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Training administrative personnel to use an update to ordering software.

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

Compost Corporation has finished its computation of Federal taxable income. In State Q, the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications. List at least five such modifications that Compost is likely to encounter. In this regard, follow the general UDITPA rules, and list both addition and subtraction modifications.

The property factor includes business assets that the taxpayer owns, but also those merely used under a lease agreement.

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.

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 State E. Hambone's current book balance sheet is as follows, with amounts in millions. Compute Hambone's liability for the E capital stock tax. $\begin{array}{lrlr}\text { Cash } & \$ 40 & \text { Payables } & \$ 50 \\\text { Receivables } & 20 & \text { Mortgages, principal } & 400\\\text { Equipment, net of accumulated }&140& \text { Common stock}&10\\ \text {depreciation}\\ \text {Buildings, net of accumulated}&300& \text {Additional paid-in capital}&190\\ \text {depreciation}\\\text { Land } & \underline{250} & \text { Retained earnings } & 100 \\\text { Total assets } & \underline{\mathbf{\$ 7 5 0}} & \text { Total liabilities and equity } & \underline{\mathbf{\$ 7 5 0}}\end{array}$