CHAPTER 24 MULTISTATE CORPORATE TAXATION

1. Kim Corporation, a calendar year taxpayer, has manufacturing facilities in States A and B. A summary of Kim’s

property holdings follows.

State A	State B	Total
Inventory	$300,000	$ 200,000	$500,000
Plant and equipment	2,200,000	1,500,000	3,700,000
Accumulated depreciation:
plant and equipment	(1,200,000)	(500,000)	(1,700,000)
Land	500,000	600,000	1,100,000
Rental property*	900,000	300,000	1,200,000
Accumulated depreciation:
rental property	(200,000)	(50,000)	(250,000)

End of Year

State A	State B	Total
Inventory	$400,000	$100,000	$500,000
Plant and equipment	2,500,000	1,200,000	3,700,000
Accumulated depreciation:
plant and equipment	(1,500,000)	(450,000)	(1,950,000)
Land	600,000	400,000	1,000,000
Rental property*	900,000	300,000	1,200,000
Accumulated depreciation:
rental property	(300,000)	(100,000)	(400,000)

*Unrelated to Kim’s regular business and operations.

Determine Kim’s property factors for the two states. A’s statutes provide that the average historical cost of business property is to be included in the property factor. B’s statutes provide that the property factor is based on the average depreciated basis of in-state business property.

2. Troy, an S corporation, is subject to tax only in State A. On Schedule K of its Federal Form 1120S, Troy reported ordinary income of $2,000,000 from its business, municipal bond interest of $150,000, taxable interest of $150,000, and charitable contributions of $300,000. A does not recognize S status, but it does follow the Federal provisions with respect to the determination of taxable income for a corporation. Determine Troy’s A taxable income.

3. You are completing the State A income tax return for Quaint Company, LLC. Quaint operates in various states, showing the following results.

Ordinary income	$800,000
Net capital loss	(60,000)
Interest income, IBM bond	40,000

In A, all interest is treated as business income. A uses a sales­only apportionment factor. Compute Quaint’s A

taxable income.

	State A	All Other States	Total
Sales	$800,000	$1,200,000	$2,000,000
Property (average cost)	250,000	2,000,000	2,250,000
Payroll	300,000	700,000	1,000,000

4. Pail Corporation is a merchandiser. It purchases overstock garments from various suppliers and sells the goods in its State L retail store. Determine the total sales that are subject to the L consumer sales tax.

Sales to L residents	$600,000
Sales to homeless shelter operated by a local church	80,000
Sales to residents who cross the border from nearby State M	100,000
Sales to a similar merchandiser, located in another L town	20,000

5. 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.

a. A resident of State A purchases a computer in A.

b. A resident of State A purchases prescription medicine in A.

c. A resident of State B purchases a computer in A.

d. A church purchases office supplies in A.

e. A State A retailer purchases in B an item that will be in the inventory of its business.

f. A resident of State A purchases hardware from a retail home improvement store in A.

g. A business based in State A purchases vacant A land, to be held for a future expansion project.

h. A business based in State A purchases repair services from an A plumbing contractor.

6. Anders, a local business, wants your help in making a decision about a large capital investment. To assist your client, list several tax and non-tax implications of the decision.

7. Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice. In what areas might your Federal income tax knowledge also be applicable in your new assignment?