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Exam 23: State and Local Taxes

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Question 1

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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 received 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. Is Tennis Pro subject to Ohio's Commercial Activity Tax (a non-income based tax)?

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Yes
Public Law 86-27...

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Question 2

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Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?

A) Only a fair portion of income can be taxed.
B) Protected activities are exempt.
C) A sufficient connection exists.
D) Tax cannot discriminate against nondomiciliary businesses.

E) A) and C)
F) B) and D)

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Question 3

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The annual value of rented property is not included in the property factor.

Handsome Rob provides transportation services in several western states. Rob has sales as follows: Rob is a California Corporation and has the following facts.Rob has nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving through Oregon. California payroll includes$200,000 of payroll for services provided in Nevada by California based drivers. What isRob's California sale numerator?

Businesses must pay income tax in their state of commercial domicile.

State tax law is comprised solely of legislative authority.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has property as follows: Tennis Pro also rents Virginia property at an annual rent of $24,000. What is Tennis Pro's Virginia property numerator and property factor?

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

Businesses subject to income tax in more than one jurisdiction have the right toapportionment.

Tennis Pro is headquartered in Virginia. Assume it has a Kentucky state income tax base of$220,000. Of this amount, $40,000 was non-business income. Assume that Tennis Pro's Kentucky sales, payroll and property apportionment factor are 12, 5, and 3 percent, respectively. Assume that Kentucky uses a single-factor sales formula apportionment method. The non-business income allocated to Kentucky was $1,000. Assuming Kentucky's corporate tax rate of 6 percent, what is Tennis Pro's Kentucky state tax liability?

Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?

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

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 thestate in which Mighty Manny does not have sales and use tax nexus given the following scenarios:

Mighty Manny, Incorporated manufactures and services deli machinery and distributes them across the United States. Mighty Manny is incorporated and headquartered in New Jersey. It has product sales in all 50 states. Mighty Manny service employees work in Connecticut, New Jersey, New York, Pennsylvania, and Rhode Island. Mighty Manny also has an executive training seminar each year in South Carolina. Determine the states in which Mighty Manny has sales and use tax nexus.

Public Law 86-272 was a congressional response to Northwestern States PortlandCement.

Which of the following law types is not a primary authority source?

Tennis Pro is headquartered in Virginia. Assume it has a state income tax base of $200,000. Of this amount, $60,000 was non-business income. Assume that Tennis Pro's Virginia apportionment factor is 73.28 percent. The non-business income allocated to Virginia was $23,000. Assuming a Virginia corporate tax rate of 5.5 percent, what is Tennis Pro's Virginia state tax liability? (Round youranswer to the nearest whole number)

In which of the following state cases did the state not assert economic nexus?

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

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. Alaska has a 6 percent sales tax. Determine the sales and use tax liability that the Shop must collect and remit if it sells a $1,000 racquet order to an Alaska customer (assume the Shop has no sales personnel or property in Alaska) that purchases the merchandise from the Virginia store over the internet?