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Exam 23: State and Local Taxes

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Question 21

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A state's apportionment formula usually relies on some variation of sales, payroll, and property factors.

A) True
B) False

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Question 22

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Delivery of tangible personal property through common carrier is a protected activity.

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Question 23

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Assume Tennis Pro discovered that one salesman has gone into Arkansas once each year of the past 4 years and performed activities creating both sales and use tax nexus and income tax nexus. Assume that Arkansas sales were $25,000 each year. Assume that Arkansas business income would be 200,000 each year and that Tennis Pro's Arkansas apportionment percentage would be 1 percent. Assume there would be no Arkansas nonbusiness income. Assume that Arkansas sales and use tax rate was 6.5 percent and corporate income tax rate was 5 percent. What would Tennis Pro's Arkansas sales and use tax and income tax liability be ignoring any possible penalties and interest?

The National Bellas Hess decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence.

Which of the following statements regarding income tax commercial domicile is incorrect?

Most state tax laws adopt the federal tax law as of a specific date in time.

Which of the following is not a general rule for calculating the sales factor?

All states employ some combination of sales and use tax, income or franchise tax, or property tax.

The Wrigley case held that the sale of intangibles is protected by Public Law 86-272.

Public Law 86-272 protects certain business activities from creating nexus.

Carolina's Hats has the following sales, payroll and property factors: $\begin{array} { l c c } & \begin{array} { c } \text { North } \\\underline{\text { Carolina }}\end{array} & \begin{array} { c } \text { South } \\\underline{\text { Carolina }}\end{array} \\\text { Sales } & 75.03 \% & 22.51 \% \\\text { Payroll } & 68.62 \% & 21.28 \% \\\text { Proprty } & 78.45 \% & 14.56 \%\end{array}$ What is Carolina's Hats North and South Carolina apportionment factors if North Carolina uses an equally-weighted three-factor formula and South Carolina uses a double-weighted sales factor formula?

Separate return states require each member of a consolidated group with nexus to file their own state tax return.

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. Determine the sales and use tax liability that the Shop must collect and remit if it sells a $500 racquet to a Tennessee customer that purchases the merchandise in the retail store?

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: $\begin{array}{l}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Mahre Sales }\\\begin{array}{lrrrr}\underline{\text { State }} & \underline{\text { Goods }} & \underline{\text { Services }} & \underline{\text { Total }} \\\text{Alaska} & \$ 23,194 & \$ 0 & \$ 23,194 \\\text { Colorado } & 10,612 & 0 & 10,612 \\\text { Maine } & 35,913 & 156,084 & 191,997 \\\text { New Hampshire } & 26,721 & 325,327 & 352,048 \\\text { New York } & 65,431 & 0 & 65,431 \\\text { Vermont } & \underline{41,982} & \underline{277,441} & \underline{319,423} \\\text { Totals } & \$ 203,853 & \$ 758,852 & \$ 962,705\end{array}\end{array}$ Assume the following tax rates: Alaska (6.6 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?

Lefty provides demolition services in several southern states. Lefty has property as follows: $\begin{array} { l r r r } & { \text { Property } } \\\text { State } & \underline { \text { Beginning } } & \underline{ \text { Ending } } \\ \text { Alabama } & \$ 123,032 & \$ 204,235 \\\text { Kentucky } & \$ 203,311 & \$ 185,102 \\\text { Mississippi } & \$ 881,921 & \$ 1,002,384 \\\text { Louisiana } & \$ 243,945 & \$ 350,304 \\\text { Tennessee } & \underline{\$ 143,198} & \underline{\$ 143,198} \\\text { Total } & \$ 1,595,407 & \$ 1,885,223\end{array}$ Lefty is a Mississippi Corporation. Lefty also rents property in Mississippi and Tennessee with annual rents of $50,000 and $15,000, respectively. What is Lefty's Mississippi property numerator?

Several states are now asserting economic nexus.

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

Public Law 86-272 was a congressional response to Northwestern States Portland Cement.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has property as follows: $\begin{array}{l}\text { Tennis Pro's Property: }\\\begin{array} { l r r r } \underline{\text { State }} & \underline{\text { Beginning }} & & \underline{\text { Ending }} \\\text { DC } & \$ 43,021 & & \$ 41,983 \\\text { Georgia } & \$ 92,385 & & \$ 83,024 \\\text { Virginia } & \$ 1,331,919 & & \$ 1,438,439 \\\text { Other } & \underline { \$ 68,203 } & & \underline{\$ 68,203} \\\text { Totals } & \$ 1,535,528 & & \$ 1,631,649\end{array}\end{array}$ What is Tennis Pro's Virginia property numerator and property factor?

Which of the following is not a general rule for calculating the payroll factor?