Deck 23: State and Local Taxes

Question

Use tax liability accrues in the state where purchased property will be used when the seller is not required to collect sales tax.

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All 50 states impose a sales and use tax system.

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Many states are expanding the types of services subject to sales tax.

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The state tax base is computed by making adjustments to federal taxable income.

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The National Bellas Hess decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence.

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State tax law is comprised solely of legislative authority.

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All states employ some combination of sales and use tax, income or franchise tax, or property tax.

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Nondomiciliary businesses are subject to tax everywhere they do business.

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Business income is allocated to the state of commercial domicile.

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The sales and use tax base varies from state to state.

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Commercial domicile is the location where a business is headquartered and directs its operations from.

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Physical presence does not always create sales and use tax nexus.

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Businesses must collect sales tax only in states where it has sales and use tax nexus.

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Wyoming imposes an income tax on corporations.

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Businesses subject to income tax in more than one jurisdiction have the right to apportionment.

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Failure to collect and remit sales taxes often results in a larger tax liability than failure to pay income taxes.

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Businesses engaged in interstate commerce are subject to tax in every state where they operate.

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Purchases of inventory for resale are typically exempt from sales and use taxes.

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The primary purpose of state and local taxes is to raise revenue to finance state and local government.

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The Quill decision reaffirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

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A state's apportionment formula usually relies on some variation of sales, payroll, and property factors.

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The Wrigley case held that the sale of intangibles is protected by Public Law 86-272.

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Sales personnel investigating a potential customer's credit worthiness exceed boundaries of solicitation.

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Federal/state adjustments correct for differences between two states tax laws.

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In Complete Auto Transit the court determined eight criteria for determining whether a state can tax a nondomiciliary company.

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Business income includes all income earned in the ordinary course of business.

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Several states are now asserting economic nexus.

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A state's apportionment formula divides nonbusiness income among the states where nexus exists.

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The trade-show rule allows businesses to maintain a sample room for up to four weeks per year.

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Most state tax laws adopt the federal tax law as of a specific date in time.

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Delivery of tangible personal property through common carrier is a protected activity.

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Public Law 86-272 protects only companies selling tangible personal property.

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Public Law 86-272 was a congressional response to Northwestern States Portland Cement.

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Giving samples and promotional materials without charge is a protected solicitation activity.

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Businesses must pay income tax in their state of commercial domicile.

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Public Law 86-272 protects certain business activities from creating nexus.

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A unitary return includes only companies included on a federal consolidated tax return.

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The Mobil decision identified three factors to determine whether a group of companies are unitary.

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Separate return states require each member of a consolidated group with nexus to file their own state tax return.

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Immaterial violations of the solicitation rules automatically create income tax nexus.

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Which of the items is correct regarding a use tax?

A) Use taxes are imposed by every state.
B) Use taxes only apply when the seller is not required to collect the sales tax.
C) Amazon collects use taxes for all of its customers.
D) States choose to implement either a sales tax or a use tax.

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All of the following are false regarding apportionment except?

A) Applies to only business income.
B) Applies to only nonbusiness income.
C) Applies to both business and nonbusiness income.
D) Investment income is subject to apportionment.

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In recent years, states are weighting the sales factor because it is easier to calculate.

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The throwback rule includes inventory in transit in the numerator of the state where it was shipped from.

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Which of the following regarding the state tax base is incorrect?

A) It is computed by making adjustments to federal taxable income.
B) It is divided into business and nonbusiness income.
C) It is a necessary step in the state income tax process.
D) It applies only to interstate businesses.

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Interest and dividends are allocated to the state of commercial domicile.

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The property factor is the average of beginning and ending property values.

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Which of the following is not a primary revenue source for most states?

A) Income or franchise taxes
B) Sales or use taxes
C) Severance taxes
D) Property taxes

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Which of the following law types is not a primary source type?

A) Legislative
B) Administrative
C) Judicial
D) Treatises

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The payroll factor includes payments to independent contractors.

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Which of the following businesses is likely to have taxable sales for purposes of sales and use tax?

A) Campus bookstore selling textbooks and university apparel.
B) An online retailer of textbooks.
C) A local accounting firm.
D) Mail order clothing company.

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Which of the following sales is always subject to sales and use tax?

A) Tax preparation services.
B) Automobiles.
C) Inventory.
D) Food.

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Which of the following is true regarding state and local taxes?

A) All states impose a state income tax.
B) Every jurisdiction imposes a sales or use tax.
C) The primary purpose is to raise revenue.
D) Property taxes are primarily used to finance a State's general revenue fund.

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Rental income is allocated to the state of commercial domicile.

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Historically, most states used an equally weighted three-factor apportionment formula.

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The annual value of rented property is included in the property factor.

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A gross receipts tax is subject to Public Law 86-272.

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Most services are sourced to the state where the services were performed.

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Which of the following statements regarding income tax commercial domicile is incorrect?

A) The location where a business is headquartered
B) The location where a business is incorporated
C) The location from which a business directs its operations
D) None of these

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Which of the following is incorrect regarding nondomiciliary businesses?

A) Subject to tax only where nexus exists.
B) A business cannot be nondomiciliary where headquartered.
C) A business can be nondomiciliary in only one jurisdiction.
D) Subject to tax only where a sufficient connection exists.

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Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress that is shipped to her Maryland residence using a common carrier. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax liability?

A) $0.
B) $75 to Virginia.
C) $75 sales tax to Virginia and $15 use tax to Maryland.
D) $90 to Maryland.

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On which of the following transactions should sales tax be collected?

A) Architecture plans delivered through the mail.
B) Sales of woolen goods to a state without nexus delivered through common carrier.
C) Accounting services provided in Alaska.
D) Meal purchased at McDonald's.

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Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress. Lisa returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence where she will use the property. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales and use tax liability?

A) $0.
B) $75 to Virginia.
C) $75 sales tax to Virginia and $15 use tax to Maryland.
D) $90 to Maryland.

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Public Law 86-272 protects a taxpayer from which of the following taxes?

A) Texas Margin Tax (a tax with net income, gross receipts, and capital worth components).
B) Washington Business and Occupation Tax (a gross receipts tax).
C) Ohio Commercial Activity Tax (an excise tax with a gross receipts base).
D) California Franchise Tax (a net income tax).

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What was the Supreme Court's holding in Quill?

A) An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
B) Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to collect sales tax from in-state customers.
C) Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.
D) Defined solicitation for purposes of Public Law 86-272.

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Which of the following isn't a typical federal/state adjustment?

A) Dividends received deduction.
B) Depreciation.
C) Meals and entertainment.
D) U.S. obligation interest income.

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Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,000,000 and out of state sales are $200,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax liability?

A) $0.
B) $10,000.
C) $50,000.
D) $60,000.

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Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, and Wisconsin. It has sales personnel only where discussed. Determine the state in which Mighty Manny does not have sales and use tax nexus given the following scenarios:

A) Mighty Manny is incorporated and headquartered in Michigan. It also has property, employees, sales personnel, and intangibles in Michigan.
B) Mighty Manny has a warehouse in Illinois.
C) Mighty Manny has independent sales representatives in Minnesota. The representatives distribute ice scraper-related items for over a dozen companies.
D) Mighty Manny has two customers in Wisconsin. Mighty Manny receives orders over the phone and ships goods to its customers using FedEx.

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What was the Supreme Court's holding in National Bellas Hess?

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Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, Wisconsin, and Wyoming. It has sales personnel only where discussed. Determine the state in which Mighty Manny does not have sales and use tax nexus given the following scenarios:

A) Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
B) Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's products to customers in other states.
C) Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
D) Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on Mighty Manny's trucks.

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Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?

A) Protected activities are exempt.
B) A sufficient connection exists.
C) Only a fair portion of income can be taxed.
D) Tax cannot discriminate against nondomiciliary businesses.

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Which of the following activities will create sales tax nexus?

A) Advertising using television commercials.
B) Salesmen who only take orders.
C) Delivery of sales by UPS.
D) Electronic delivery of software.

Question

PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: $\begin{array} { l r l } \text { Item } & { \text { Amount } } { } & \text { Federal Treatment } \\\hline\text { Illinois Income Taxes } & \$ 33,333 & \text { Deducted on federal return } \\\text { Indiana Income Taxes } & \$ 18,500 & \text { Deducted on federal return } \\\text { Ohio Commercial Activity Tax } & \$ 4,000 & \text { Deducted on federal return } \\\text { Illinois Bond Interest } & \$ 10,000 & \text { Excluded from federal return } \\\text { Indiana Bond Interest } & \$ 15,000 & \text { Excluded from federal return } \\\text { Federal T-Note Interest } & \$ 2,500 & \text { Included on federal return }\end{array}$ PWD's Federal Taxable Income was $100,000. Calculate PWD's Illinois state tax base.

A) $116,000
B) $130,833
C) $131,000
D) $140,833

Question

Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store which ships to out of state customers. The ski tours operate in Maine, New Hampshire, and Vermont where Mahre has employees and owns and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Mahre Sales }$
$\begin{array}{lrrr}\text { State } & \text { Goods } & {\text { Services }} & {\text { Total }} \\\hline\text { Alaska } & \$ 23,194 & \$ 0 & \$ 23,194 \\\text { Colorado } & 10,612 & 0 & 10,612 \\\text { Maine } & 35,913 & 156,084 & 191,997 \\\text { New Hampshire } & 26,721 & 325,327 & 352,048 \\\text { New York } & 65,431 & 0 & 65,431 \\\text { Vermont } & \underline{41,982} & \underline{277,441} & \underline{319,423} \\\text { Totals } & \$ 203,853 & \$ 758,852 & \$ 962,705\end{array}$ Assume the following tax rates: Alaska (6.6 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (6.75 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?

A) $10,386
B) $14,543
C) $26,733
D) $61,289

Question

Which of the following isn't a requirement of Public Law 86-272?

A) The tax is based on net income.
B) The taxpayer sells only tangible personal property.
C) The taxpayer is an intrastate business.
D) The taxpayer is nondomiciliary.

Question

A) $0
B) $3,053
C) $13,267
D) $16,319

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Bethesda Corporation is unprotected from income tax by Public Law 86-272. Which of the following characteristics creates a problem for Bethesda in states other than Maryland?

A) Bethesda does business in Maryland and five other states.
B) Bethesda sells copier equipment and copy center services.
C) All orders are approved in Maryland.
D) All in-state services are limited to solicitation in states other than Maryland.

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Which of the following isn't a criteria used to determine whether a unitary relationship exists?

A) Functional integration.
B) Centralized management.
C) Economies of scale.
D) Consolidated return status.

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Which of the following states is not asserting economic nexus?

A) New York with the Amazon rule.
B) South Carolina in the Geoffrey case.
C) West Virginia in the MBNA case.
D) Wisconsin in Wrigley.

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Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?

A) Any form of advertising.
B) Distribution of samples without charge.
C) Accepting a down payment.
D) Checking a customer's inventory.

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Deck 23: State and Local Taxes

Use tax liability accrues in the state where purchased property will be used when the seller is not required to collect sales tax.

True

All 50 states impose a sales and use tax system.

False

Many states are expanding the types of services subject to sales tax.

True

The state tax base is computed by making adjustments to federal taxable income.

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