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Exam 24: Multistate Corporate Taxation

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Question 41

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A state sales tax usually falls upon:

A) The sale of a used dinette set sold at a rummage sale.
B) The sale of a dinette set by the manufacturer to a furniture retailer.
C) The sale of a case of Bibles by the publisher to a church bookstore.
D) The sale of a Bible to a member of the church.
E) All of these are exempt transactions.

F) C) and E)
G) C) and D)

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Question 42

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Typically exempt from the sales/use tax base is the purchase of tools by a manufacturer to make the widgets that it sells.

A) True
B) False

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Question 43

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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, State X defines payroll as all compensation paid to employees, including elective contributions to § 401(k) deferred compensation plans. Under the statutes of State W, neither compensation paid to officers nor contributions to § 401(k) plans are included in the payroll factor. Trayne incurred the following personnel costs. $\begin{array}{lrrr}&\text { State X } & \text { State W } & \text { Totals } \\\\\text { Wages and salaries for employees other }\\\text { than officers } & \$ 500,000 & \$ 300,000 & \$ 800,000 \\\text { Salaries for officers } & 300,000 & 150,000 & 450,000 \\\text { Contributions to } \S 401(\mathrm{k}) \text { plans } & 200,000 & 50,000 & 250,000\\\text { Totals } & \$ 1,000,000 & \$ 500,000 & \$ 1,500,000\\\text { Trayne's payroll factor for State } \mathrm{X} \text { is: }\end{array}$ a. 100.00%. b. 66.67%. c. 62.50%. d. 50.00%.

With respect to typical sales/use tax laws:

A state sales tax usually falls upon:

Although apportionment formulas vary among jurisdictions, most states use the same three factors in the formula. The factors are ____________________, ____________________, and ____________________.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A garment purchased by a self-employed actress.

Match each of the following items with the appropriate description in determining whether sales/use tax typically must be collected. -A garment purchased for resale.

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

Britta Corporation's entire operations are located in State A. Of Britta's sales, 80% ($800,000) are made in State A and the remaining sales ($200,000) are made in State B, which has not adopted a corporate income tax. If State A has adopted a throwback rule, the numerator of Britta's State A sales factor is:

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. -Q adopts a throwback rule.

A use tax applies when a State A resident purchases:

Franz Corporation is based in State A (corporate income tax rate 10%). It sells its goods to customers in both State A and State B (corporate income tax rate 4%). Franz's state taxable income for the year is $1 million, 45% of which relates to State B customers. Franz's level of activities in State B is insufficient to create nexus there, but State A has adopted a throwback rule as to multistate sales. Would Franz reduce its total state income tax liability by creating nexus with State B, for example, by allowing its sales force to make credit decisions? Elaborate.

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

Match each of the following items with the appropriate description in applying the P.L. 86-272 definition of solicitation. -Purchasing ads that appear on search-result screens of internet browsers.

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

A unitary business applies a combined apportionment formula, including data from operations of all affiliates.

The tax levied by a state usually is based on the book value of a corporation's net worth.

Under P.L. 86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3% and Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should: