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Exam 23: State and Local Taxes

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Question 1

True/False

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Use tax liability accrues in the state where purchased property will be used when the seller is not required to collect sales tax.

A) True
B) False

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Question 2

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The throwback rule includes inventory in transit in the numerator of the state where it was shipped from.

A) True
B) False

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Question 3

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Moss Incorporated is a Washington corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: $\begin{array} { l r l } \text { Item } & \text { Amount } & \text { Federal Treatment } \\\text { Oregon Income Taxes } & \$ 25,750 & \text { Deducted on federal return } \\\text { Washington B\&O Tax } & \$ 15,500 & \text { Deducted on federal return } \\\text { Oregon Bond Interest } & \$ 10,000 & \text { Excluded from federal return } \\\text { Washington Bond Interest } & \$ 15,000 & \text { Excluded from federal return } \\\text { Federal T-Note Interest } & \$ 7,500 & \text { Included on federal return } \\\text { Depreciation } & \$ 134,250 & \text { Deducted on federal return }\end{array}$ Moss' Oregon depreciation was $145,500. Moss' Federal Taxable Income was $549,743. Calculate Moss' Oregon state tax base.

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

Hoosier Incorporated is an Indiana corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: $\begin{array}{lrll}\text { Item } & \text { Amount } & \text { Federal Treatment } \\\hline\text { Illinois Income Taxes } & \$ 33,333 & \text { Deducted on federal return } \\\text { Indiana Income Taxes } & \$ 18,500 & \text { Deducted on federal return } \\\text { Ohio Commercial Activity Tax } & \$ 4,000 & \text { Deducted on federal return } \\\text { Depreciation } & \$ 40,000 & \text { Deducted on federal return } \\\text { Illinois Bond Interest } & \$ 10,000 & \text { Excluded from federal return } \\\text { Indiana Bond Interest } & \$ 15,000 & \text { Excluded from federal return } \\\text { Federal T-Note Interest } & \$ 2,500 & \text { Included on federal return }\end{array}$ State depreciation expense was $50,000. Hoosier's Federal Taxable Income was $150,300. Calculate Hoosier's Illinois state tax base.

Physical presence does not always create sales and use tax nexus.

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress. Lisa returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence where she will use the property. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales and use tax liability?

Immaterial violations of the solicitation rules automatically create income tax nexus.

The trade-show rule allows businesses to maintain a sample room for up to four weeks per year.

Which of the following statements regarding income tax commercial domicile is incorrect?

Business income is allocated to the state of commercial domicile.

The state tax base is computed by making adjustments to federal taxable income.

What was the Supreme Court's holding in Quill?

Tennis Pro has the following sales, payroll and property factors: $\begin{array} { l r r } & \text { Virginia } & \text { Maryland } \\\text { Sales } & 40 \% & 20 \% \\\text { Payroll } & 70 \% & 5 \% \\\text { Property } & 90 \% & 5 \%\end{array}$ What is Tennis Pro's Virginia and Maryland apportionment factors if both states use an equally-weighted three-factor formula?

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

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?

Big Company and Little Company are both owned by Mrs. Big. Big and Little file a consolidated federal tax return. Big manufactures office paper and other paper supplies and is based in Washington. Little operates a logging operation in Montana. Sixty percent of Little's sales are made to Big. Ten percent of Big's raw materials come from Little. There are no common officers or board members. There are no common service providers. What are the factors for and against filing a unitary tax return?

What was the Supreme Court's holding in Complete Auto Transit?

On which of the following transactions should sales tax be collected?

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