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Exam 24: Multistate Corporate Taxation

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Question 81

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In computing the property factor, property owned by the corporation typically is valued at its , but without adjusting for depreciation.

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Question 82

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Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Carrying a free sample of a product to the customer's premises.

A) More than solicitation, creates nexus
B) Solicitation only, no nexus created

C) A) and B)
D) undefined

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Question 83

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

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A textbook purchased by a State University student.

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

Your client, Hamlin Industries, wants to reduce its overall state/local income tax liability. Hamlin holds income- producing assets of various types, including tangible personal property, rental land and buildings, and high-yield stocks and bonds. You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time. What device might Hamlin use in a restructuring of its operations to achieve the desired tax result? Be specific.

Almost all of the states allow treatment to an LLC for income tax purposes.

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

Typically, sales/use taxes constitute about 20% of a state's annual tax collections for most states.

Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Making a decision as to the creditworthiness of customers.

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

The throwback rule requires that:

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: State X State Z Totals Sales $1,000,000 $3,000,000 $4,000,000 Property 2,000,000 -0- 2,000,000 Payroll 1,000,000 -0- 1,000,000 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?

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

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A meal eaten at a restaurant while conducting business.

In the apportionment formula, most states assign more than a one-third weight to the factor.

Bert Corporation, a calendar year taxpayer, owns property in States M and O. Both states require that the average value of assets be included in the property factor. State M requires that the property be valued at its historical cost, and State O requires that the property be included in the property factor at its net depreciated book value. $\text { Account Balances at Beginning of Year }$ $\begin{array}{lrrr} & \text { State } M & \text { State } O & \text { Totals } \\\text { Inventories } & \$ 200,000 & \$ 300,000 & \$ 500,000 \\\text { Building \& machinery (cost) } & 700,000 & 300,000 & 1,000,000 \\\text { Accumulated depreciation } & (150,000) & (50,000) & (200,000) \\\text { Land } & 400,000 & 200,000 & 600,000\end{array}$ $\begin{array}{llcc} \text { Totals } &\$1,150,000&\$750,000&\$1,900,000 \\\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Account Balances at Year-End }$ $\begin{array}{lrrr} & \text { State M }& \text { State \( O \) }& \text { Totals}\\\text { Inventories } & \$ 400,000 & \$ 100,000 & \$ 500,000 \\\text { Building \& machinery (cost) } & 800,000 & 500,000 & 1,300,000 \\\text { Accumulated depreciation } & (300,000) & (100,000) & (400,000) \\\text { Land } & \underline{400,000} & \underline{200,000} & \underline{600,000} \\\text { Totals } & \underline{\$ 1,300,000} & \$ \underline{\$ 700,000} & \underline{\$ 2,000,000} \\\end{array}$ $\begin{array}{ll}\text { Annual rent payments } & \underline{\underline{\$ 50,000}} & \underline{\$ 25,000} \\\text { Bert's State M property factor is: }\end{array}$

Most states exempt consumer purchases of groceries from the collection of the local sales tax.

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