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Question # 00006788 Posted By: spqr Updated on: 01/17/2014 12:01 PM Due on: 01/31/2014
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1866. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #36
In most states, a limited liability company (LLC) is subject to the state income tax:

a. As a flow-through entity, similar to its Federal income tax treatment.
b. As though it were a unitary business.
c. As though it were a C corporation.
d. LLCs typically are exempted from state income taxation.

1867. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #37
A state sales tax usually falls upon:

a. Sales of groceries.
b. Sales made to out-of-state customers.
c. Sales made to the U.S. Department of Education.
d. Sales made to the ultimate consumer of the product or service.

1868. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #38
A state sales tax usually falls upon:

a. The sale of a used dinette set sold at a rummage sale.
b. The sale of a dinette set by the manufacturer to the retailer.
c. The purchase of a Bible by a member at the church’s bookstore.
d. The sale of a case of Bibles by the publisher to a church bookstore.
e. All of the above are exempt transactions.

1869. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #39
A use tax applies when a State A resident purchases:

a. A new automobile from a State A dealership.
b. A used automobile from the web site of a State A dealership.
c. A new automobile from a State B dealership, then using the car back at home.
d. Hardware from sears.com rather than at the Best Buy store at the local mall.

1870. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #40
In conducting multistate tax planning, the taxpayer should:

a. Review tax opportunities in light of their effect on the overall business.
b. Exploit inconsistencies among the taxing statutes and formulas of the states.
c. Consider the tax effects of the plan after accounting for any new compliance and administrative costs that it generates.
d. All of the above are true.

1871. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #41
When the taxpayer operates in one or more unitary states:

a. Apportionment factors are computed on a group-wide basis.
b. The tax incentive of creating nexus in a low-tax state is enhanced.
c. The tax benefit of a passive investment subsidiary holding company is neutralized.
d. The use of a water’s edge election should be considered.
e. All of the above are true.

1872. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #42
The benefits of a passive investment company typically include:

a. Reduced state income taxes.
b. Isolation of the entity’s portfolio income from taxation in other nonunitary states.
c. Exclusion of the subsidiary’s portfolio income from the parent corporation’s apportionment formula denominator in other nonunitary states.
d. All of the above are benefits.

1873. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #43
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.

1874. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #44
Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior’s effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

a. Execute an intercompany loan, such that Junior pays deductible interest to Parent.
b. Have Parent charge Junior an annual management fee.
c. Shift Parent’s high-cost assembly and distribution operations to Junior.
d. All of the above are effective income-shifting techniques for a unitary group.
e. None of the above is an effective income-shifting technique for a unitary group.

1875. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #45
Parent and Junior form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior’s effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

a. Execute an intercompany loan, such that Junior pays deductible interest to Parent.
b. Have Parent charge Junior an annual management fee.
c. Shift Parent’s high-cost assembly and distribution operations to Junior.
d. All of the above are effective income-shifting techniques for a non-unitary group.
e. None of the above is an effective income-shifting technique for a non-unitary group.

1876. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #46
Slattery Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 4% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Slattery should:

a. Remove all stored inventory from A.
b. Establish a personal training center in A.
c. Move its home office from B to A.
d. Convert to employee status the independent contractors that it uses to sell widgets in A.

1877. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #47
For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

a. Payroll.
b. Property.
c. Unitary.
d. Sales (gross receipts).

1878. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #48
Pryce Corporation’s property holdings in State E are as follows.


Item

Property factor
valuation ($M)

Manufacturing equipment

100

Land held for potential appreciation

25

Manufacturing equipment that is not currently needed and sits idle

5

Manufacturing equipment that is not currently needed and is leased to another taxpayer

20


Compute the numerator of Pryce’s E property factor.

a. $150 million.
b. $125 million.
c. $120 million.
d. $100 million.

1879. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MA #1-7
Match each of the following terms with the appropriate description, in the state income tax formula.Treasury Bond interest incomeDeduction for cost of goods soldState income tax expenseState depreciation deduction in excess of Federal amountFederal income taxes paidDividend income from Exxon Mobile bonds heldFederal energy creditSubtraction modification No modification Addition modification Subtraction modification Subtraction modification Subtraction modification No modification

[a] 1. Treasury Bond interest income
[b] 2. Deduction for cost of goods sold
[c] 3. State income tax expense
[d] 4. State depreciation deduction in excess of Federal amount
[e] 5. Federal income taxes paid
[f] 6. Dividend income from Exxon Mobile bonds held
[g] 7. Federal energy credit

1880. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MA #8-14
Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation.Owning a company car used on sales trips to the stateMaking a decision as to the creditworthiness of customersTraining administrative personnel to use new softwareMaintaining a product after purchase, on the customer’s premisesWriting up a sales orderRunning a television advertising campaign that is seen in the stateOperating an office to interview and hire employeesSolicitation only, no nexus created More than solicitation, creates nexus More than solicitation, creates nexus More than solicitation, creates nexus Solicitation only, no nexus created Solicitation only, no nexus created More than solicitation, creates nexus

[a] 1. Owning a company car used on sales trips to the state
[b] 2. Making a decision as to the creditworthiness of customers
[c] 3. Training administrative personnel to use new software
[d] 4. Maintaining a product after purchase, on the customer’s premises
[e] 5. Writing up a sales order
[f] 6. Running a television advertising campaign that is seen in the state
[g] 7. Operating an office to interview and hire employees

1881. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MA #15-18
Match each of the following events to its likely effect on WillCo’s various apportionment factors. WillCo is based in Q and has customers in Q, R, and S. To this point, WillCo has not established nexus with S.Q adopts a throwback ruleQ adopts a sales-only apportionment formulaWillCo establishes nexus with SR adopts a cut in its statutory tax ratesQ apportionment factor increases Q apportionment factor decreases Q apportionment factor decreases No change in apportionment factors R apportionment factor increases R apportionment factor decreases S apportionment factor increases S apportionment factor decreases

[a] 1. Q adopts a throwback rule
[b] 2. Q adopts a sales-only apportionment formula
[c] 3. WillCo establishes nexus with S
[d] 4. R adopts a cut in its statutory tax rates

1882. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MA #19-29
Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected.A garment purchased for resaleA garment purchased by an actressA garment purchased for wear at an office jobTextbook purchased by a State University studentA new auto purchased in Europe and shipped by the driver to her home statePrescription drugs and medicinesAccounting services purchased by a businessComputer equipment purchased by a charityT-shirts purchased by an individual at a rummage saleGroceries purchased and taken homeA meal eaten at a restaurantNot taxable Taxable Taxable Taxable Taxable Not taxable Not taxable Not taxable Not taxable Not taxable Taxable

[a] 1. A garment purchased for resale
[b] 2. A garment purchased by an actress
[c] 3. A garment purchased for wear at an office job
[d] 4. Textbook purchased by a State University student
[e] 5. A new auto purchased in Europe and shipped by the driver to her home state
[f] 6. Prescription drugs and medicines
[g] 7. Accounting services purchased by a business
[h] 8. Computer equipment purchased by a charity
[i] 9. T-shirts purchased by an individual at a rummage sale
[j] 10. Groceries purchased and taken home
[k] 11. A meal eaten at a restaurant

1883. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #1
The starting point in computing state taxable income generally is ____________________.

1884. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #2
In determining taxable income for state income tax purposes, the Federal NOL deduction typically constitutes a(n) ____________________ modification.

1885. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #3
In determining taxable income for state income tax purposes, the state NOL deduction typically constitutes a(n) ____________________ modification.

1886. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #4
____________________ 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.

1887. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #5
Under _____________________, a state is prohibited from taxing a business if the only connection with the state is the solicitation of orders for sales of tangible personal property that are sent outside the state for approval or rejection and, if approved, are filled and shipped by the business from a point outside of the state.

1888. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #6
P.L. 86-272 ____________________ (does/does not) create nexus when the seller conducts its sales solicitations from a calling center building that it owns.

1889. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #7
P.L. 86-272 ____________________ (does/does not) create nexus when the seller runs a booth with inventory samples, at a one-week trade show in the state.

1890. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #8
_________________________ is a means by which a corporation’s business income is divided among the states in which it conducts business.

1891. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #9
____________________ is a method under which a corporation’s nonbusiness income is directly assigned to the specific states where the income is derived.

1892. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #10
Although apportionment formulas vary among jurisdictions, most states use a three-factor formula. The factors are ____________________, ____________________, and ____________________.



1893. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #11
In the apportionment formula, most states assign more than a one-third weight to the ____________________ factor.

1894. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #12
State Q has adopted sales-factor-only apportionment for its corporate income tax. As a result, a ____________________ (larger/smaller) percentage of an out-of-state corporation’s income is assigned to tax in the state.

1895. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #13
Under the UDITPA’s ____________________ concept, sales are assumed to take place at the point of delivery, as opposed to the location at which the shipment originates.

1896. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #14
When a _________________________ is in effect, out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.

1897. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #15
Typically, the state’s payroll factor ____________________ (does/does not) include the fringe benefits provided to its sales force.

1898. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #16
In computing the property factor, property owned by the corporation typically is valued at its ____________________, plus the cost of additions and improvements, but without adjusting for ____________________.

1899. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #17
Leased property, when included in the property factor, usually is valued at ____________________ times its annual rental, even though the taxpayer does not own the asset.

1900. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #18
A(n) ____________________ business operates its separate companies as a whole. It cannot be segregated into independently operating divisions or branches.

1901. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #19
In unitary states, a(n) ____________________ provision permits a multinational corporation to elect to limit the reach of the state’s taxing jurisdiction to activities occurring within the boundaries of the United States.

1902. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #20
Overall tax liabilities typically ____________________ (increase/decrease) if the members of a unitary group begin to include affiliates that generate net operating losses.

1903. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #21
Under common terminology, a unitary group files a ____________________ state income tax return.

1904. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #22
In some states, an S corporation must withhold Federal income tax for its shareholders who ____________________ (are/are not) state residents.

1905. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #23
Several states allow the S corporation to file a(n) ____________________ income tax return, usually in the form of a state-by-state spreadsheet, on behalf of its out-of-state shareholders.

1906. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #24
Almost all of the states treat a general partnership as a ____________________ entity for income tax purposes.

1907. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #25
Typically, a sales/use tax is applied to a retail sale of ____________________ property.



1908. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #26
A state sales/use tax is designed to be collected by the ____________________ (seller/purchaser) of the product and then remitted to the state.

1909. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #27
A ____________________ tax is designed to complement the local sales tax structure, to prevent the consumer from making purchases in another, lower-tax state.

1910. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #28
The sale of a prescription medicine probably is exempt from sales/use tax under the _________________________ rule.

1911. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #29
The ____________________ tax usually is applied at the city or county level, as its main source of revenue.

1912. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #30
Most jurisdictions levy a property tax on ____________________ but not on ____________________ property.

1913. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #31
An ad valorem property tax is based on the asset’s current ____________________.

1914. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #32
A state might levy a(n) ____________________ tax when an investor sells shares of stock.

915. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question CO #33
The ____________________ tax levied by a state usually is based on the book value of a corporation’s “net worth.”

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