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Exam 24: Multistate Corporate Taxation

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Question 51

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Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Account Balances at Beginning of Year }$$\begin{array}{lccc} & \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 \\& 1.150,000 & \$ 750.000 & \$ 1.900 .000 \\\end{array}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Account Balances at Year-End }$ $\begin{array}{lrrr}&\text {StateM}&\text {State O }&\text {Total}\\\text { Inventories } & \$ 400,000 & \$ 100,000 & \$ 500,000 \\\text { Building \& machinery (cost) } & 800,000 & 500,000 & 1,300,000 \\\text { Accumulated depreciation } & (300,000) & (100,000) & (400,000) \\\text { Land } & \underline{400,000} & \underline{200,000} &\underline{600,000}\\\text { Totals } & \$ 1,300,000 & \$ 700,000 & \$ 2,000,000 \\\\\text { Annual rent payments}&\$ 50,000 & \$ 25,000 \\\end{array}$ Bert's State M property factor is:

A) 75.0%.
B) 66.7%.
C) 64.9%.
D) 64.5%.

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

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Question 52

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If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

A) True
B) False

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Question 53

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Typically exempt from the sales/use tax base is the purchase of clothing from a neighbor's "garage sale."

Flint Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Flint's Federal taxable income is $750,000, which includes a $50,000 deduction for state income taxes. During the year, Flint received $10,000 interest on Federal obligations. X tax law does not allow a deduction for state income tax payments. Flint's taxable income for X purposes is:

Milt Corporation owns and operates two facilities that manufacture paper products. One of the facilities is located in State D, and the other is located in State E. Milt generated $1,200,000 of taxable income, comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from the sale of nonbusiness property located in E. E does not distinguish between business and nonbusiness property. D apportions business income. Milt's activities within the two states are outlined below. $\begin{array}{lrrr} & \text { State D } & \text { State E } & \text { Total } \\\text { Sales of paper products } & \$ 4,500,000 & \$ 1,500,000 & \$ 6,000,000 \\\text { Property } & 3,500,000 & 2,500,000 & 6,000,000 \\\text { Payroll } & 1,500,000 & 1,000,000 & 2,500,000\end{array}$ Both D and E utilize a three-factor apportionment formula, under which sales, property, and payroll are equally weighted. Determine the amount of Milt's income that is subject to income tax by each state.

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

A typical U.S. state piggybacks its collections of the corporate income tax, by letting the Federal government collect and remit the corresponding tax to the state.

Which of the following is not immune from state income taxation, even if P.L. 86-272 is in effect?

The typical state sales/use tax falls on sales of both real and personal property.

Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.

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

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

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

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

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

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.

A state sales tax usually falls upon:

A taxpayer wishing to reduce the negative tax effects of the application of the unitary theory might:

Under P.L. 86-272, which of the following transactions by itself would create nexus with a state?

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Computer software, in the form of a disk purchased by an individual at a rummage sale.