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Exam 16: Multistate Corporate Taxation

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Question 31

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Norman Corporation owns and operates two manufacturing facilities,one in State X and the other in State Y.Due to a temporary decline in the corporation's sales,Norman has rented 20% of its Y facility to an unaffiliated corporation.Norman generated $1,000,000 net rental income and $2,000,000 income from manufacturing. Norman is incorporated in Y.For X and Y purposes,rental income is classified as allocable nonbusiness income.By applying the statutes of each state,Norman determined that its apportionment factors are .75 for X and .25 for Y. Norman's income attributed to X is:

A) $0.
B) $1,000,000.
C) $1,500,000.
D) $2,000,000.
E) $3,000,000.

F) B) and E)
G) None of the above

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Question 32

Multiple Choice

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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. Bert's 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 33

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Wailes Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Wailes' Federal taxable income is $750,000,which includes a $75,000 deduction for state income taxes.During the year,Wailes received $20,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. Wailes' taxable income for X purposes is:

Under most local property tax laws,the value of an asset is fixed after an appraisal by the taxing jurisdiction.

Only a few states require that Federal S corporations make a separate state-level election of the flow-through status.

S corporations must withhold taxes on the portions of the entity's income allocated to its shareholders.

When the taxpayer operates in one or more unitary states:

Summarize the principles of multistate tax planning.

States collect the most tax dollars from the sales/use tax.

Valdez 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. Valdez's O property factor is:

Typically exempt from the sales/use tax base is the purchase of computer and cell phone equipment by a large consulting firm that is incorporated in the state.

A state sales tax usually falls upon:

States use a common apportionment formula and set of factors,known as the Streamlined Sales Tax Method.

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

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.

For most taxpayers,which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

Kurt Corporation realized $600,000 taxable income from the sales of its products in States X and Z.Kurt's activities establish nexus for income tax purposes in both states.Kurt's sales,payroll,and property among the states include the following. Z utilizes an equally weighted three-factor apportionment formula.Kurt is incorporated in X.How much of Kurt's taxable income is apportioned to Z?

The typical state sales/use tax falls on sales of both products and services.

Nonbusiness income includes rentals of investment property.

A state cannot levy a tax on a business unless the business was incorporated in the state.