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Exam 16: Multistate Corporate Taxation

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Question 1

True/False

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Most states waive the collection of sales tax on medical equipment.

A) True
B) False

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Question 2

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Giant Corporation owns all of the stock of Junior Corporation,a Delaware passive investment company.Giant operates strictly in nonunitary State B,which levies a 9% income tax.This year,Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Giant.In which state(s) will the interest income create an income tax liability?

A) In neither state.
B) Only in Delaware.
C) Only in B.
D) In both B and Delaware,according to the apportionment formulas of each.

E) B) and C)
F) All of the above

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Question 3

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Allocation is a method under which a corporation's _________________________ income is directly assigned to the specific states where the income is derived.

____________________ describe(s)the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an entity's income.

Indicate for each transaction whether a sales (S)or use (U)applies,or whether the transaction is nontaxable (N).Where the laws vary among various states,assume that the most common rules apply.All taxpayers are individuals.

Almost all of the states assess some form of consumer-level sales/use tax.

A state sales tax usually falls upon:

By making a water's edge election,the multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S.and E.U.affiliates.

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

When the taxpayer operates in one or more unitary states:

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

State and local politicians tend to apply new and increased taxes to taxpayers who are visitors to the jurisdiction,such as a tax on auto rentals,because the taxpayer cannot vote to reelect the lawmaker.

A ____________________ tax is designed to complement the local sales tax structure,to prevent the consumer from making purchases in a lower-tax state or online,and then bringing the asset into the state.

S corporations flow-through income amounts to its shareholders,and most states require a withholding of shareholder taxes on the allocated amounts.

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

An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.

The use tax is designed to complement the sales tax.A use tax typically covers purchases made out of state and brought into the jurisdiction.

Roughly five percent of all taxes paid by businesses in the U.S.are to state,local,and municipal jurisdictions.

Nonbusiness income receives tax-exempt treatment under all state corporate income taxes.

Helene Corporation owns manufacturing facilities in States A,B,and C.A uses a three-factor apportionment formula under which the sales,property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor,based solely on sales. Helene's operations generated $1,000,000 of apportionable income,and its sales and payroll activity and average property owned in each of the three states is as follows. Helene's apportionable income assigned to A is: