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Exam 16: Multi-State Corporate Taxations

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Question 1

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Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

A) Have Parent charge Minor an annual management fee.
B) Shift Parent's high-cost assembly and distribution operations to Minor.
C) Execute an intercompany loan, such that Minor pays deductible interest to Parent.
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.

F) A) and E)
G) B) and D)

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Question 2

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The ____________________ tax usually is applied at the city or county level, as its main source of revenue.

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Question 3

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Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following. $\begin{array}{lrrr} & \text { State X } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 3,000,000 \\\text { Property } & 200,000 & 2,300,000 & 2,500,000 \\\text { Payroll } & 100,000 & 1,900,000 & 2,000,000\end{array}$ ? X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

A city might assess a recording tax when a business takes out a mortgage on its real estate.

Condor Corporation generated $450,000 of state taxable income from selling its product in States A and B. For the taxable year, the corporation's activities within the two states were as follows. ​ $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Total } \\\text { Sales } & \$ 800,000 & \$ 200,000 & \$ 1,000,000 \\\text { Property } & 300,000 & - 0 - & 300,000 \\\text { Payroll } & 200,000 & 800,000 & 1,000,000\end{array}$ ​ Condor has determined that it is subject to tax in both A and B. Both states utilize a three-factor apportionment formula that equally weights sales, property, and payroll. The rates of corporate income tax imposed in A and B are 5% and 3%, respectively. Determine Condor's state income tax liability.

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. $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ ? Helene's apportionable income assigned to A is:

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.

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Operating a warehouse for inventory that is held in the state.

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. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Account Balances at Beginning of Year }$ $\begin{array}{lrrr} & \text { State } M & \text { State } O & \text { Totals } \\\text { Inventories } & \$ 200,000 & \$ 300,000 & \$ 500,000 \\\text { Buil ding \& machinery (cost) } & 700,000 & 300,000 & 1,000,000 \\\text { Accumulated depreciation } & (150,000) & (50,000) & (200,000) \\\text { Land } & 400,000 & 200,000 & 600,000 \\\text { Totals } & \underline{\mathbf{\$ 1,150,000}} & \underline{\mathbf{\$ 750,000}} & \underline{\mathbf{\$ 1,900,000}}\end{array}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Account Balances at Year-End }$ $\begin{array}{lrrr} & \text { State } M & \text { State } O & \text { Totals } \\\text { Inventories } & \$ 400,000 & \$ 100,000 & \$ 500,000 \\\text { Buil ding \& machinery (cost) } & 800,000 & 500,000 & 1,300,000 \\\text { Accumulated depreciation } & (300,000) & (100,000) & (400,000) \\\text { Land } & \underline{400,000} & \underline{200,000} & \underline{600,000} \\\text { Totals } & \$ 1.300,000 & \$ 700,000 & \$ 2,000,000\end{array}$ Valdez's O property factor is:

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.

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.

Most states' consumer sales taxes are paid by the final purchaser of the taxable asset.

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -Computer equipment purchased by a charity. i

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. -Carrying a free sample of a product to the customer's premises.

A use tax applies when a State A resident purchases:

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A textbook purchased by a State University student.

Determine Drieser's sales factors for States K, M, and N. Drieser Corporation's manufacturing facility, distribution center, and retail store are located in State K. Drieser sells its products to residents located in States K, M, and N. Sales to residents of K are conducted through a retail store. Sales to residents of M are obtained by Drieser's sales representative, who has the authority to solicit, accept, and approve sales orders in State M. Residents of N can purchase Drieser's product only if they place an order online and arrange to take delivery of the product at Drieser's shipping dock. Drieser's sales this year were reported as follows. $\begin{array} { l r } \text { Sales to residents of State K } & \$ 1,000,000 \\\text { Sales to residents of State M } & 600,000 \\\text { Sales to residents of State N } & 900,000 \\\text { Total } & \underline { \mathbf { 2 } , \mathbf { 0 0 0 , 0 0 0 } }\end{array}$ Drieser's activities within the three states are limited to those described above. All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales, property, and payroll are equally weighted. State K sources dock sales to the destination state.

General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its A headquarters to the State B office of the FBI. In which state(s) will the sale be included in the sales factor numerator?

Match each of the following items with the appropriate description, in determining whether sales/use tax typically must be collected. -A meal eaten at a restaurant while conducting business.

A state sales/use tax is designed to be collected by the ____________________ (seller/purchaser) of the product and then remitted to the state.