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Exam 13: State and Local Taxation

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Question 1

Multiple Choice

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M Corp.earns $100,000 of business income from the licensing of a patent to an unrelated party.M's commercial domicile is State A.The licensee utilizes the patent in State B.Under the MTC regulations, royalties received by M from the license should be included in the numerator of the sales factors as follows

A) State A-$100,000; State B-$0
B) State A-$0; State B-$100,000
C) State A-$100,000; State B-$100,000
D) State A-$50,000; State B-$50,000
E) State A-$; State B-$0

F) A) and D)
G) B) and C)

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Question 2

Multiple Choice

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X Corp.has a manufacturing facility in State A.It has sales in State B, as well as in State A.X conducts sufficient activities in both states to create nexus.During the current year, X has sales as follows: Sales shipped from State A to customers in State A $\$ 10,000,000$ Sales shipped from State A to customers in State B $8,000,000$ Dock sales to State B customers $\quad 2,000,000$ What is X's State A sales factor for the current year?

A) 100%
B) 50%
C) 60%
D) 90%
E) Some other percentage

F) C) and E)
G) B) and C)

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Question 3

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B Corp.has a manufacturing plant in State Y.It has sales in both States Y and Z; however, its activities in State Z are insufficient to create nexus under P.L.86-272.For the current year, B has sales as follows: Sales shipped from State Y to customers in State Y $\$ 20,000,000$ Sales shipped from State $\mathrm { Y }$ to customers in State $\mathrm { Z }$ $12,000,000$ Dock sales to State $Z$ customers $\quad 8,000,000$ State Y has enacted a throwback rule.What is B's State Y sales factor for the current year?

For purposes of the payroll factor, which of the following amounts generally constitute "compensation"?

The sum of the apportionment percentages for the states in which a corporation conducts business must always equal 100 percent.

T Corp.owns investment securities that are physically located in State A.T is incorporated in State B and its home office (from which the securities portfolio is managed) is located in State C.States B and C impose a state income tax.The earnings on the investment securities will most likely be taxed in

Which of the following types of income would probably be considered "business income" for state income tax purposes?

Employee X drives a company automobile 6,000 miles in State A and 4,000 miles in State B.The automobile is valued at $20,000 for purposes of the property factor.The corporation's home office is located in State C.For purposes of the payroll factor, X's compensation is assigned to State B.The value of the automobile should be included in the numerator of the property factor as follows

T Corp.owns investment securities that are physically located in State A.T is incorporated in State B and its home office (from which the securities portfolio is managed) is located in State C.All three states impose a state income tax.The earnings on the investment securities will most likely be taxed in

Corporations X and Y comprise a unitary business.Corporation X operates only in State A, while Corporation Y operates only in State B.Both states impose a state income tax and employ the unitary concept.A portion of Corporation X's income will be taxed in State B.

The unitary concept has no application where a group of related businesses are organized as separate corporate entities.

Passive income, such as interest, dividends, rents, and royalties, always constitutes nonbusiness income.

X purchases goods for resale.X will generally be liable for sales tax on such purchases.

D Corporation operates in two states, Y and Z.Both states impose a state income tax.For the current year, D has taxable income of $5,000,000 (after state adjustments) .Such income consists of $4,000,000 of business income and $1,000,000 of nonbusiness income attributable solely to State Y.D conducts sufficient activities in both states to create nexus.Both states allocate nonbusiness income and apportion business income using a three-factor formula.State Y equally weights the three factors, while State Z assigns double weight to the sales factor.The current year factors are as follows: $\begin{array}{lll}&\text { State } Y&\text { State } Z\\\text { Sales } & 80 \% & 20 \% \\\text { Property } & 40 \% & 60 \% \\\text { Payroll } & 60 \% & 40 \%\end{array}$ What is D's State Z taxable income for the current year.

Leased property is generally not taken into account in computing the property factor.

X Corp.has a manufacturing facility in State A.It has sales in State B, as well as in State A.X conducts sufficient activities in both states to create nexus.During the current year, X has sales as follows: Sales shipped from State A to customers in State A $\$ 20,000,000$ Sales shipped from State A to customers in State B $22,000,000$ Dock sales to State B customers $\quad 8,000,000$ What is X's State A sales factor for the current year?

States generally impose a capital based franchise tax in lieu of a tax based on net income.

Which of the following statements concerning the state taxation of S corporations is true?

Business income is allocated whereas nonbusiness income is apportioned.

W Corp.owns 100 percent of the stock of three subsidiaries, X, Y, and Z.W and X have nexus with both States A and B.Y conducts business only in State B.Z is a foreign corporation that conducts no business in the United States.All four corporations comprise part of a unitary business.If combined reporting based on unitary principles is utilized in State A and a water's edge election is made, how many corporations' income and apportionment figures will be taken into account?