Question 1

List the steps necessary to determine an interstate businesses' state income tax liability.

Accepted Answer

Determine the state tax base, divide into business and nonbusiness income, apportion business income, allocate nonbusiness income, add business and nonbusiness income for each state, and multiply by the state tax rate.
See Exhibit 23-3.

Question 2

Most states have shifted away from an equally weighted three-factor to a heavily-weighted sales apportionment formula.

Accepted Answer

A) True 
 B)False  True

Question 3

Super Sadie, Incorporated manufactures sandals and distributes them across the southwestern United States. Assume that Super Sadie has sales tax nexus in Arizona, California, Colorado, New Mexico, and Texas. Super Sadie has sales as follows:
  
Assume the following sales tax rates: Arizona (6 percent), California (8 percent), Colorado (7 percent), New Mexico (6.5 percent), Oregon (7.25 percent), Texas (8 percent), and Utah (5 percent). What is Super Sadie's total sales and use tax liability? (Round your interim calculations to the nearest whole number.)

Accepted Answer

$233,900.
($583,194 × 6 percent) + ($1,003,923 × 8 percent) + ($487,204 × 7 percent) + ($201,932 × 6.5 percent) + ($892,048 × 8 percent).

Question 4

Nondomiciliary businesses are subject to tax everywhere they do business.

Accepted Answer

A) True 
 B)False

Question 5

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 nexus given the following scenarios:

Accepted Answer

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.

Question 6

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufacturers, and customizes tennis racquets for serious amateurs. Tennis Pro's business has expanded significantly over the last few years. Currently, it has sales personnel in 10 states (Virginia, North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, District of Columbia, New Jersey). All sales activity in all of these states is limited to solicitation. Orders are taken by the sales team and forwarded to Blacksburg for approval. All orders are sent by common carrier to customers. Tennis Pro owns retail and warehouse space in Virginia and has another warehouse in Kentucky. Where does Tennis Pro have income tax nexus?

Accepted Answer

The answer of Gordon operates the Tennis Pro Shop in...

Question 7

A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Assume Tennis Pro attends a sports equipment expo in Washington State. Assume this activity creates nexus for the Business and Occupation (B&O) tax. Assume the tax is 0.5% of gross receipts for retailers and 1.5% of gross receipts on services. If Tennis Pro has $20,000 of Washington retail sales and $2,000 of services performed, calculate Tennis Pro's B&O tax.

Accepted Answer

The answer of Assume Tennis Pro attends a sports equipment...

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Business income is allocated to the state of commercial domicile.

Accepted Answer

A) True 
 B)False

Question 12

A unitary return includes only companies included in the federal consolidated tax return filing.

Accepted Answer

A) True 
 B)False

Question 13

All 50 states impose a sales and use tax system.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the steps necessary to determine whether a sales tax applies and how the tax is collected.

Accepted Answer

The answer of Discuss the steps necessary to determine whether...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Assume Tennis Pro discovered that one salesman has gone into Arkansas once each year of the past 4 years and performed activities creating both sales tax nexus and income tax nexus. Assume that Arkansas sales were $25,000 each year. Assume that Arkansas business income would be 200,000 each year and that Tennis Pro's Arkansas apportionment percentage would be 1 percent. Assume there would be no Arkansas nonbusiness income. Assume that Arkansas sales and use tax rate was 6.5 percent and corporate income tax rate was 5 percent. What would Tennis Pro's Arkansas sales and use tax and income tax liability be ignoring any possible penalties and interest?

Accepted Answer

The answer of Assume Tennis Pro discovered that one salesman...

Question 18

Which of the following is not a general rule for allocating nonbusiness income?

Accepted Answer

A)   Interest and dividends to the state of commercial domicile.
B)   Rental income for investment property to state of commercial domicile.
C)   Rental income for business property to state where property is located.
D)   Capital gains from rental property to state where property is located.

Question 19

Which of the following is not a general rule for calculating the payroll factor?

Accepted Answer

A)   Includes salaries, commissions, and bonuses.
B)   Excludes compensation to independent contractors.
C)   Allocates compensation for employees working in more than one state.
D)   Assigns the payroll of each employee to a single state.

Question 20

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. The Shop sells, manufacturers, and customizes tennis racquets for serious amateurs. Virginia has a 5 percent sales tax. Tennessee has a 4 percent sales tax. Determine the sales and use tax liability that the Shop must collect and remit if it sells a $500 racquet to a Tennessee resident that purchases the merchandise in the Virginia retail store?

Accepted Answer

The answer of Gordon operates the Tennis Pro Shop in...

Exam 12: State and Local Taxes

List the steps necessary to determine an interstate businesses' state income tax liability.

Most states have shifted away from an equally weighted three-factor to a heavily-weighted sales apportionment formula.

Nondomiciliary businesses are subject to tax everywhere they do business.

A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.

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

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

Business income is allocated to the state of commercial domicile.

A unitary return includes only companies included in the federal consolidated tax return filing.

All 50 states impose a sales and use tax system.

Discuss the steps necessary to determine whether a sales tax applies and how the tax is collected.

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

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

Which of the following is not a general rule for allocating nonbusiness income?

Which of the following is not a general rule for calculating the payroll factor?