Chapter 24 homework questions [excluding photo questions]

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. g. Gain on the sale of a plot of land held by a manufacturer on which it may expand its factory.

Allocated

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. a. Profits from sales activities.

Apportioned

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. b. Profits from consulting and other service activities.

Apportioned

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. c. Losses from sales activities.

Apportioned

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. d. Profits from managing the stock portfolio of a client.

Apportioned

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. f. Gain on the sale of a plot of land held by a real estate developer.

Apportioned

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. h. Rent income received by a manufacturer from the leasing of space to a supplier.

Apportioned

Josie is a sales representative for Talk2Me, a communications retailer based in Fort Smith, Arkansas. Josie's sales territory is Oklahoma, and she regularly takes day trips to Tulsa to meet with customers. During a typical sales call, Josie takes the customers' current orders and, using her wireless phone, sends the orders to headquarters in Fort Smith for immediate action. Approved orders are shipped from the Little Rock warehouse. In which state(s) are Josie's sales subject to the corporate income tax?

Arkansas

Considering items by a taxpayer must evaluate when computing state corporate taxable income, classify the following items select as either "Apportioned" "Allocated" or "Neither apportion nor allocate". Note: Assume that the state follows the general rules of the UDITPA. e. Profits from managing one's own stock portfolio.

Neither Apportioned nor allocated

Select either "True" or "False" with regard to the overlap of rules appearing in Federal and most state income tax laws. State rules as to which entities can join in a consolidated return match those of Federal law.

False

Select either "True" or "False" with regard to the overlap of rules appearing in Federal and most state income tax laws. The corporate income tax systems of most states can be described as progressive in their rate structure.

False

Castle Corporation conducts business in States 1, 2, and 3. Castle's $630,000 taxable income consists of $555,000 apportionable income and $75,000 allocable income generated from transactions conducted in State 3. Castle's sales, property, and payroll are evenly divided among the three states, and the states all employ an identical apportionment formula. If required, round any computation to the nearest dollar. Accordingly, _________ of Castle's income is taxable on State 1, $________________ in State 2 and $_________________ in State 3.

State 1 = $185,000 State 2 = $185,000 State 3 = $260,000

Legends Corporation owns and operates two manufacturing facilities, one in State A and the other in State B. Due to a temporary decline in sales, Legend has rented 25% of its State A facility to an unaffiliated corporation. Legend generated $200,000 net rent income and $1,400,000 income from manufacturing. Both states classify the rent income as allocable nonbusiness income. By applying the statutes of each state, Legends determines that its apportionment factors are .70 for A and .30 for B. Income subject to tax in State A is $_____________ and income in State B is $______________ .

State A = $1,180,000 State B = $420,000

Select either "True" or "False" with regard to the overlap of rules appearing in Federal and most state income tax laws. A typical state income tax credit would equal 10% of the costs incurred to purchase and install solar energy panels for an existing factory.

True

Select either "True" or "False" with regard to the overlap of rules appearing in Federal and most state income tax laws. Most of the states start with Federal taxable income in computing state taxable income, i.e., they "piggyback" their taxable income amount with the Federal amount.

True

Select either "True" or "False" with regard to the overlap of rules appearing in Federal and most state income tax laws. There are a wide variety of rules that the states use to compute corporate taxable income; thus, there is no "typical" state income tax computation.

True

True or False: An S corporation can facilitate the meeting of its state income tax filing obligations by developing a common spreadsheet that allocates and apportions income among the states with which it has nexus. This spreadsheet is attached to each of the state returns to be filed.

True

Compute Balboa Corporation's State F taxable income for the year.: Addition modifications $29,000 Allocated income (total) $25,000 Allocated income (State F) $3,000 Allocated income (State G) $22,000 Apportionment percentage 40% Credits $800 Federal taxable income $90,000 Subtraction modifications $15,000 Tax rate 5% [a] Balboa Corporation's State F state tax base (after modifications) is $___________. [b] Balboa Corporation's State F apportionable income (before the percentage is applied) is $____________. [c] Balboa Corporation's State F apportioned income is $_________________. [d] Balboa Corporation's State F taxable income is $____________________. [e] Balboa Corporation's State F net tax liability (after credits) is $_____________.

[a] $104,000 [b] $79,000 [c] $31,600 [d] $34,600 [e] $930

As the director of the multistate tax planning department of a consulting firm, you are developing a brochure to highlight the services it can provide. Part of the brochure is a list of key techniques that clients can use to reduce state income tax liabilities. Classify each of the following items as either "Include" or "Exclude" in the list of key techniques for the brochure. [a] Create nexus in a low- or no-tax state, so that through the apportionment process, a lower effective tax rate can be used. [b] Physically move operations to a low- or no-tax state, perhaps on a divisional or other functional basis. [c] Move the investment assets into a passive investment subsidiary. [d] Reduce the payroll expense through the use of independent contractors. [e] Acquire a subsidiary that offers a presence in a no- or low-tax state or a research division whose losses will offset taxable income. [f] If the home state has not adopted a throwback rule, make new sales in low- or no-tax states or in states with no nexus. [g] If the home state has adopted a throwback rule, make new sales in low- or no-tax states or in states with no nexus.

[a] Include [b] Include [c] Include [d] Include [e] Include [f] Include [g] Exclude

For each transaction, identify whether a "Sales tax" or "Use tax" or the transaction is "Nontaxable". Note the following: (1) Where the laws vary among states, assume that the most common rules apply and (2) All taxpayers are individuals. [a] A resident of State A purchases an automobile in State A. [b] A resident of State A purchases groceries in State A. [c] A resident of State B purchases an automobile in State A. [d] A charity purchases office supplies in State A.. [e] A resident of State A purchases in State B an item that will be in the inventory of her business.

[a] Sales tax [b] Nontaxable [c] Use Tax [d] Nontaxable [e] Nontaxable

Your client, HillTop, is a retailer of women's clothing. It has increased sales during the holiday season by advertising gift cards for in-store and online use. HillTop has found that gift card holders who come into the store tend to purchase goods that total more than the amount of the gift card. Further, about one-third of the gift cards never are redeemed, thereby yielding cash to the company without a reduction of inventory. Complete the paragraph below that covers the tax issues confronting HillTop related to the gift cards. Because unclaimed property rules [a] _________ enacted as a taxing statute. the usual nexus and apportionment test [b] _____________ apply. The property is taken by the state in which the [c] ___________

[a] are not [b] do not [c] business incorporated

The trend in state income taxation is for states to adopt a version of the unitary theory of multijurisdictional taxation in their statutes and regulations. a. Complete the paragraph below that outlines why some states are attracted to the unitary theory and a combined reporting scheme of multistate income taxation. These states are attracted to the unitary theory, as it can [a] ______________ the taxpayer's income taxes, as the apportionment formula includes operations in locations where payrolls, property values, and selling prices are [b] ________________ than normally experienced. A combined reporting scheme of multi-state income taxation is a means to [c] _____________ the use of passive investment companies and [d]______________ the taxation of income from intangible assets.

[a] increase [b] higher [c] discourage [d] to allow

Chirp Corporation owns two subsidiaries, Song and Bird. Song, located in State A, generated taxable income of $500,000. During this same period, Bird, located in State B, generated a loss of $100,000. If the subsidiaries are independent corporations, Song is required to pay [a]_____________ tax on [b]$________________. However, if the corporations constitute a unitary business, [c]__________________________, of the two entities are combined. As a result, [d]$___________ is [e]__________ unitary States A and B.

[a] only State A [b] $50,000 [c] the incomes, as well as the apportionment factors [d] $400,000 [e] apportioned to

The trend in state income taxation is to move to an apportionment formula that places extra weight on the sales factor. Several states now use sales-factor-only apportionment. Complete the statement below that outlines why this development is attractive to the taxing states. Generally, the greater the relative weight assigned to the sales factor, the greater the tax burden on ___________ taxpayers.

out-of-state