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Question;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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