Question 1

The benefits of a passive investment company typically include:

Accepted Answer

All of the above options are benefits of a passive investment company.

Question 2

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Excessive state depreciation deduction

Accepted Answer

The answer of Match each of the following terms with...

Question 3

A state sales tax usually falls upon:

Accepted Answer

Choice b.is exempt under the casual sale rule.Choice c.is exempt as a re-sale transaction.Choice d.is exempt as a re-sale transaction.

Question 4

For most taxpayers,which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

Accepted Answer

For most taxpayers, sales (gross receipts) yields the greatest opportunities for tax reduction because it is often the most heavily weighted apportionment factor in many states. Thus, companies that can allocate more of their sales outside of higher tax states can reduce their overall tax liability. This is often achieved through careful structuring of sales transactions or by maintaining lower levels of property or payroll in higher tax states.

Question 5

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Federal R & D credit

Accepted Answer

The answer of Match each of the following terms with...

Question 6

In most states,a limited liability company (LLC)is subject to the state income tax:

Accepted Answer

Most states treat LLCs as flow-through entities, similar to Federal treatment. This means that the income of the LLC is passed through to the owners and is only taxed at the individual level, not at the entity level. Therefore, the LLC itself is not subject to state income tax, but its owners are. Option A and B are incorrect because they imply that the LLC is subject to the state income tax as a separate entity. Option D is incorrect because LLCs are generally not exempt from state income taxation.

Question 7

Slattern Co.sells one product in two states.State A levies a 9% effective tax rate,and State B levies a 2% rate.A and B have adopted sales-factor-only apportionment formulas.To reduce overall multistate income tax liabilities,Slattern should:

Accepted Answer

By reducing activities in State A and documenting nexus in State B, Slattern can shift more of its sales to the lower-taxed state, thereby reducing its overall multistate income tax liabilities.

Question 8

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-State income tax expense

Accepted Answer

The answer of Match each of the following terms with...

Question 9

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Federal NOL deduction

Accepted Answer

The answer of Match each of the following terms with...

Question 10

A use tax:

Accepted Answer

The other choices all generate sales taxes.

Question 11

In conducting multistate tax planning,the taxpayer should:

Accepted Answer

All of the options are true when conducting multistate tax planning. The taxpayer must review tax opportunities in light of their effect on the overall business, consider additional administrative costs generated by the plan, exploit inconsistencies among the statutes and formulas of the states, and also recognize that minimizing state tax costs may not always be the best strategy. Therefore, option E is the correct choice.

Question 12

When the taxpayer operates in one or more unitary states:

Accepted Answer

All of the options are true when a taxpayer operates in one or more unitary states. 
A) Apportionment factors are computed on a group-wide basis. This means that the income, assets, and payroll of all the entities within the unitary group will be combined, and the factors will be calculated based on the total amount. 
B) The tax incentive of creating nexus in a low-tax state is enhanced. This is because if a company has a subsidiary or an affiliate in a state with a lower tax rate or tax incentives, the company can allocate more income to that state, reducing the overall tax liability. 
C) The tax benefit of a passive investment subsidiary holding company is neutralized. This is because a passive investment subsidiary may not generate any income, assets, or payroll in the state where it is incorporated, and therefore may not be included in the apportionment factors, reducing the overall tax liability. However, in a unitary state, the subsidiary will be included, and the tax benefit will be neutralized. 
D) The use of a water's edge election should be considered. A water's edge election is a method of apportionment that allows a company to exclude the income and expenses of its foreign affiliates when calculating the state tax liability. This may be beneficial for companies with significant foreign operations, but it should be considered carefully in the context of a unitary state.

Question 13

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Deduction for Federal communications tax

Accepted Answer

The answer of Match each of the following terms with...

Question 14

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation.
a.More than solicitation, creates nexus
b.Solicitation only, no nexus created
-Approving a sales order

Accepted Answer

The answer of Match each of the following items with...

Question 15

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:

Accepted Answer

The answer of Parent and Junior form a non-unitary group...

Question 16

Ace Corporation owns all of the stock of Junior Corporation,a Delaware passive investment company.Ace operates strictly in nonunitary State B,which levies a 6% income tax.This year,Junior earned $200,000 of portfolio interest income and paid $150,000 of this amount to Ace in the form of a dividend.In which state(s)will the interest income create an income tax liability?

Accepted Answer

Typically the passive investment company is incorporated and commercially domiciled in a state (like Delaware)that does not impose a corporate income tax or exempts such income from taxation.

Question 17

A state sales tax usually falls upon:

Accepted Answer

Sales taxes usually apply only at the retail level.

Question 18

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:

Accepted Answer

Unitary taxation foils all of these techniques.

Question 19

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Treasury Bond interest income

Accepted Answer

The answer of Match each of the following terms with...

Question 20

Match each of the following terms with the appropriate description, in the state income tax formula.
a.Addition modification
b.Subtraction modification
c.No modification
-Federal ACE adjustment

Accepted Answer

The answer of Match each of the following terms with...

Quiz 15: Multistate Corporate Taxation

The benefits of a passive investment company typically include:

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Excessive state depreciation deduction

A state sales tax usually falls upon:

For most taxpayers,which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Federal R & D credit

In most states,a limited liability company (LLC) is subject to the state income tax:

Slattern Co.sells one product in two states.State A levies a 9% effective tax rate,and State B levies a 2% rate.A and B have adopted sales-factor-only apportionment formulas.To reduce overall multistate income tax liabilities,Slattern should:

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -State income tax expense

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Federal NOL deduction

A use tax:

In conducting multistate tax planning,the taxpayer should:

When the taxpayer operates in one or more unitary states:

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Deduction for Federal communications tax

Match each of the following items with the appropriate description, in applying the P.L. 86-272 definition of solicitation. a.More than solicitation, creates nexus b.Solicitation only, no nexus created -Approving a sales order

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 state sales tax usually falls upon:

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:

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Treasury Bond interest income

Match each of the following terms with the appropriate description, in the state income tax formula. a.Addition modification b.Subtraction modification c.No modification -Federal ACE adjustment