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Exam 23: State and Local Taxes

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Question 31

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Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the Midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, Wisconsin, and Wyoming. It has sales personnel only where discussed. Determine the state in which Mighty Manny does not have sales tax nexus given the following scenarios:

A) Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
B) Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's customers in other states.
C) Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
D) Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on Mighty Manny's trucks.

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

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Question 32

Multiple Choice

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Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?

A) Any form of advertising.
B) Distribution of samples without charge.
C) Accepting a down payment.
D) Checking a customer's inventory.

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

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Question 33

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Tennis Pro is headquartered in Virginia. Assume it has a Kentucky state income tax base of $220,000. Of this amount, $40,000 was non-business income. Assume that Tennis Pro's Kentucky sales, payroll and property apportionment factor are 12, 5, and 3 percent, respectively. Assume that Kentucky uses a single-factor sales formula apportionment method. The non-business income allocated to Kentucky was $1,000. Assuming Kentucky's corporate tax rate of 6 percent, what is Tennis Pro's Kentucky state tax liability?

Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store which ships to out-of-state customers. The ski tours operate in Maine, New Hampshire, and Vermont where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: Assume the following sales tax rates: Alaska (0 percent) , Colorado (7.75 percent) , Maine (8.5 percent) , New Hampshire (6.75 percent) , New York (8 percent) , and Vermont (5 percent) . How much sales and use tax must Mahre collect and remit in Maine?

A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.

Which of the following is an income based tax?

Federal/state adjustments correct for differences between two states tax laws.

In recent years, states are weighting the sales factor because it is easier to calculate.

Rental income is allocated to the state of commercial domicile.

Public Law 86-272 protects a taxpayer from which of the following taxes?

Most services are sourced to the state where the services were performed.

Discuss the steps necessary to determine whether a sales tax applies and how the tax is collected.

On which of the following transactions should sales tax generally be collected?

Della Corporation is headquartered in Carlisle, Pennsylvania. Della has a Pennsylvania state income tax base of $425,000. Of this amount, $75,000 was nonbusiness income. Della's Pennsylvania apportionment factor is 28.52 percent. The nonbusiness income allocated to Pennsylvania was $61,000. Assuming a Pennsylvania corporate tax rate of 7.75 percent, what is Della's Pennsylvania state tax liability? (Round your answer to the nearest whole number.)

Business income includes all income earned in the ordinary course of business.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. The Shop sells, manufacturers, and customizes tennis racquets for serious amateurs. Virginia has a 5 percent sales tax. Arizona has a 6 percent sales tax. Determine the sales tax liability that the Shop must collect and remit if it sells a $1,000 racquet order to an Arizona customer (assume the Shop has no sales personnel or property in Arizona) that purchases the merchandise from the Virginia store over the internet?

Several states are now moving from a strict physical presence test towards an economic presence test.

Which of the following is not a primary revenue source for most states?

Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the Midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, and Wisconsin. It has sales personnel only where discussed. Determine the state in which Mighty Manny does not have sales and nexus given the following scenarios:

Giving samples and promotional materials without charge is a protected solicitation activity.