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Exam 24: Multistate Corporate Taxation

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Question 51

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If a gift card is unused after a specified period of time, the state can collect the amount of the card proceeds from the seller as ____________________ property.

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Question 52

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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.

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Question 53

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General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. This activity is not sufficient for General to create nexus with State B. State A applies a throwback rule but State B does not. In which state(s) will the sale be included in the sales factor numerator?

A service engineer spends 80% of her time maintaining the employer's productive business property and 20% maintaining the employer's nonbusiness rental properties. This year, her compensation totaled $90,000. The payroll factor assigns $90,000 to the state in which the employer is based.

P.L. 86-272 (does/does not) create income tax nexus when the seller inserts advertising flyers into the Sunday newspaper that is sold in the state.

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

Match each of the following terms with the appropriate description in the state income tax formula. Apply the UDITPA rules in your responses. -Treasury bond interest income.

Match each of the following terms with the appropriate description in the state income tax formula. Apply the UDITPA rules in your responses. -State-level NOL.

Typically exempt from the sales/use tax base is a symphony orchestra's purchase of printed music for its musicians.

Cruz Corporation owns manufacturing facilities in States A, B, and C. State A uses a three-factor apportionment formula under which the sales, property, and payroll factors are equally weighted. State B uses a three-factor apportionment formula under which sales are double-weighted. State C employs a single-factor apportionment factor based solely on sales. Cruz's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows: $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ Cruz's apportionable income assigned to State C is:

You are completing the State A income tax return for Quaint Company, LLC. Quaint operates in various states with the following results: $\begin{array}{lc}\text { Ordinary income } & \$ 800,000 \\\text { Net capital loss } & (60,000) \text { Interest } \\\text { income, IBM bond } & 40,000\end{array}$ In State A, all interest is treated as apportionable income. State A uses a sales-only apportionment factor. Compute Quaint's State A taxable income. $\begin{array} { l r r r } & \text { State A } & \text { All Other States } & \text { Total } \\\text { Sales } & \$ 800,000 & \$ 1,200,000 & \$ 2,000,000 \\\text { Property (average cost) } & 250,000 & 2,000,000 & 2,250,000 \\\text { Payroll } & 300,000 & 700,000 & 1,000,000\end{array}$

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 State 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 State E capital stock tax. $\begin{array} { l r l r } \text { Cash } & \$ 40 & \text { Payables } & \$ 50 \\\text { Receivables } & 20 & \text { Mortgages, principal } & 400 \\\begin{array} { l } \text { Fruinment net of accumulated } \\\quad \text { depreciation }\end{array} & 140 & \text { Common stock } & 10 \\\begin{array} { l } \text { Ruildings net of acrumulated } \\\text { depreciation }\end{array} & 300 & \text { Additional pard-in capital } & 190 \\\begin{array} { l } \text { Land }\end{array} & \underline { 250 } & \text { Retained earnings } & \underline { 100 } \\\text { Total assets } & \underline { \underline { \$ 750 } } & \text { Total liabilities and equity } & \underline { \underline { \$ 750 } }\end{array}$

In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact and allocated according to the location of property owned or used.

Under common terminology, a unitary group files a (combined/consolidated) state income tax return.

In determining taxable income for state income tax purposes, interest income from another state's bonds typically constitutes a(n) modification.

A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

Overall tax liabilities typically (increase/decrease) if the members of a unitary group begin to include affiliates that generate net operating losses.

In applying the typical apportionment formula:

An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000. The payroll factor assigns $65,000 for this employee.

The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.