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Exam 23: State and Local Taxes

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Question 31

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A state's apportionment formula divides nonbusiness income among the states where nexus exists.

A) True
B) False

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Question 32

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Which of the following sales is always subject to sales and use tax?

A) Tax preparation services.
B) Automobiles.
C) Inventory.
D) Food.

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

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Question 33

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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?

Which of the following law types is not a primary source type?

A unitary return includes only companies included on a federal consolidated tax return.

Commercial domicile is the location where a business is headquartered and directs its operations from.

Mighty Manny, Incorporated manufactures and services deli machinery and distributes them across the United States. Mighty Manny is incorporated and headquartered in New Jersey. It has product sales in all 50 states. Mighty Manny service employees work in Connecticut, New Jersey, New York, Pennsylvania, and Rhode Island. Mighty Manny also has an executive training seminar each year in South Carolina. Determine the states in which Mighty Manny has sales and use tax nexus.

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

Which of the following isn't a criteria used to determine whether a unitary relationship exists?

Handsome Rob provides transportation services in several western states. Rob has sales as follows: $\begin{array}{l}\text { Rob's Payroll: }\\\begin{array} { l r } \text { State } & \text { Sales } \\\hline\text { Arizona } & \$ 350,512 \\\text { California } & \$ 1,134,589 \\\text { Nevada } & \$ 849,142 \\\text { Washington } & \underline{\$ 323,032} \\\text { Totals } & \$ 2,657,275\end{array}\end{array}$ Rob is a California Corporation and has the following facts. Rob has nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving through Oregon. California payroll includes $200,000 of payroll for services provided in Nevada by California based drivers. What is Rob's California sale numerator?

Lefty provides demolition services in several southern states. Lefty has property as follows: $\begin{array} { l r r r } & { \text { Property } } \\\text { State } & { \text { Beginning } } & { \text { Ending } } \\\hline\text { Alabama } & \$ 123,032 & \$ 204,235 \\\text { Kentucky } & \$ 203,311 & \$ 185,102 \\\text { Mississippi } & \$ 881,921 & \$ 1,002,384 \\\text { Louisiana } & \$ 243,945 & \$ 350,304 \\\text { Tennessee } & \underline{\$ 143,198} & \underline{\$ 143,198} \\\text { Total } & \$ 1,595,407 & \$ 1,885,223\end{array}$ 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?

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufacturers, and customizes tennis racquets for serious amateurs. Tennis Pro's business has expanded significantly over the last few years. Currently, it has sales personnel in 10 states (Virginia, North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, District of Columbia, New Jersey). All in state activity is limited to solicitation. Orders are taken by the sales team and forwarded to Blacksburg for approval. All orders are sent by common carrier to customers. Tennis Pro owns retail and warehouse space in Virginia and has another warehouse in Kentucky. Where does Tennis Pro have income tax nexus?

Which of the following regarding the state tax base is incorrect?

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

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

All 50 states impose a sales and use tax system.

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

Businesses must pay income tax in their state of commercial domicile.

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

List the steps necessary to determine an interstate businesses' state income tax liability.