Law question data bank

| August 14, 2017

1831. Question
MC #1
Norman Corporation owns and operates two manufacturing facilities, one in State
X and the other in State Y. Due to a temporary decline in the corporation’s
sales, Norman has rented 20% of its Y facility to an unaffiliated corporation.
Norman generated $1,000,000 net rental income and $2,000,000 income from
manufacturing.

Norman is incorporated in Y. For X and Y purposes, rental income is classified
as allocable nonbusiness income. By applying the statutes of each state, Norman
determined that its apportionment factors are .65 for X and .35 for Y.

Norman’s income attributed to X is:

a.
$0.
b. $1,000,000.
c. $1,300,000.
d. $2,000,000.
e. $3,000,000.

1832. Question
MC #2
Wailes Corporation is subject to a corporate income tax only in State X. The
starting point in computing X taxable income is Federal taxable income. Wailes’
Federal taxable income is $750,000, which includes a $75,000 deduction for
state income taxes. During the year, Wailes received $20,000 interest on
Federal obligations. X tax law does not allow a deduction for state income tax
payments.

Wailes’ taxable income for X purposes is:

a.
$825,000.
b. $805,000.
c. $750,000.
d. $680,000.

1833. Question
MC #3
Perez Corporation is subject to tax only in State A. Perez generated the
following income and deductions.

Federal taxable income

$500,000

State A income tax expense

50,000

Depreciation allowed for Federal tax purposes

300,000

Depreciation allowed for state tax purposes

400,000

Federal taxable income is the starting point in computing A taxable income.
State income taxes are not deductible for A tax purposes. Perez’s A taxable
income is:

a.
$400,000.
b. $450,000.
c. $600,000.
d. $650,000.

1834. Question
MC #4
In determining a corporation’s taxable income for state income tax purposes,
which of the following does not
constitute a subtraction from Federal income?

a.
Interest on U.S. obligations.
b. Expenses that are directly or
indirectly related to state and municipal interest that is taxable for state
purposes.
c. The amount by which the Federal
deduction for depreciation exceeds the depreciation deduction permitted for
state tax purposes.
d. The amount by which the state loss
from the disposal of assets exceeds the Federal loss from such disposal.

1835. Question
MC #5
In determining state taxable income, all of the following are adjustments to
Federal income except:

a.
A Federal net operating loss.
b. Federal income tax expense.
c. Dividends received from other U.S.
corporations.
d. Wages paid to officers and
executives.

1836. Question
MC #6
Bulky Company sold an asset on the first day of the tax year for $500,000.
Bulky’s Federal tax basis for the asset was $300,000. Because of differences in
cost recovery schedules, the state regular-tax basis in the asset was $375,000.
What adjustment, if any, should be made to Bulky’s Federal taxable income in
determining the correct taxable income for the typical state?

a.
$75,000.
b. $25,000.
c. ($75,000).
d. $0.

1837. Question
MC #7
Federal taxable income is used as the starting point in computing the state’s
income tax base, but numerous state adjustments or modifications generally are
required to:

a.
Reflect differences between state and Federal tax statutes.
b. Remove income that a state is
constitutionally prohibited from taxing.
c. Allow for all of the states to use
the same definition of taxable income.
d. a. and b.

1838. Question
MC #8
The model law relating to the assignment of income among the states for
corporations is:

a.
The Multistate Tax Treaty.
b. The Uniform Division of Income for
Tax Purposes Act (UDITPA).
c. Public Law 86-272.
d. The Multistate Tax Commission (MTC).

1839. Question
MC #9
Under P.L. 86-272, which of the following transactions by itself would create
nexus with a state?

a.
Order solicitation for a computer, approved and filled from another state.
b. Order solicitation for a marketable
security, approved, and filled from another state.
c. Order solicitation for a machine,
with credit approval from another state.
d. The conduct of a training seminar for
customers as to how to install and operate a new software product.

1840. Question
MC #10
Under P.L. 86-272, which of the following transactions by itself would create
nexus with a state?

a.
Inspection by a sales employee of the customer’s inventory for specific product
lines.
b. Using an independent contractor who
acts as a manufacturer’s representative for the taxpayer through a sales office
in the state.
c. Executing a sales campaign, using an
advertising agency acting as an independent contractor for the taxpayer.
d. Maintenance of inventory in the state
by an independent contractor under a consignment plan.

1841. Question
MC #11
Which of the following is not immune
from state income taxation, even if P.L. 86-272 is in effect?

a.
Sale of the rights associated with a patent used in the taxpayer’s business.
b. Sale of office equipment that
constitutes inventory to the purchaser.
c. Sale of office equipment to be used
in the taxpayer’s business.
d. All of the above are protected by
P.L. 86-272 immunity provisions.

1842. Question
MC #12
Kurt Corporation realized $900,000 taxable income from the sales of its
products in States X and Z. Kurt’s activities establish nexus for income tax
purposes in both states. Kurt’s sales, payroll, and property among the states
include the following.

State
X

State
Z

Totals

Sales

$2,000,000

$2,000,000

$4,000,000

Property

2,000,000

–0–

2,000,000

Payroll

1,000,000

–0–

1,000,000

Z utilizes an equally weighted three-factor apportionment formula. Kurt is
incorporated in X. How much of Kurt’s taxable income is apportioned to Z?

a.
$0.
b. $150,000.
c. $900,000.
d. $2,000,000.

1843. Question
MC #13
José Corporation realized $600,000 taxable income from the sales of its
products in States X and Z. José’s activities in both states establish nexus
for income tax purposes. José’s sales, payroll, and property among the states
include the following.

State
X

State
Z

Totals

Sales

$1,500,000

$1,000,000

$2,500,000

Property

500,000

–0–

500,000

Payroll

1,500,000

–0–

1,500,000

Z utilizes a double-weighted sales factor in its three-factor apportionment
formula. How much of José’s taxable income is apportioned to Z?

a.
$600,000.
b. $120,000.
c. $80,000.
d. $0.

1844. Question
MC #14
José Corporation realized $600,000 taxable income from the sales of its
products in States X and Z. José’s activities in both states establish nexus
for income tax purposes. José’s sales, payroll, and property among the states
include the following.

State
X

State
Z

Totals

Sales

$1,500,000

$1,000,000

$2,500,000

Property

500,000

–0–

500,000

Payroll

1,500,000

–0–

1,500,000

X utilizes an equally weighted three-factor apportionment formula. How much of
José’s taxable income is apportioned to X?

a.
$600,000.
b. $520,200.
c. $200,000.
d. $79,800.

1845. Question
MC #15
Mandy Corporation realized $1,000,000 taxable income from the sales of its
products in States X and Z. Mandy’s activities establish nexus for income tax
purposes only in Z. Mandy’s sales, payroll, and property among the states
include the following.

State
X

State
Z

Totals

Sales

$1,000,000

$2,000,000

$3,000,000

Property

2,000,000

500,000

2,500,000

Payroll

1,000,000

1,000,000

2,000,000

X utilizes a sales-only factor in its three-factor apportionment formula. How
much of Mandy’s taxable income is apportioned to X?

a.
$0.
b. $333,333.
c. $543,333.
d. $1,000,000.

1846. Question
MC #16
Helene Corporation owns manufacturing facilities in States A, B, and C. A uses
a three-factor apportionment formula under which the sales, property and
payroll factors are equally weighted. B uses a three-factor apportionment
formula under which sales are double-weighted. C employs a single-factor
apportionment factor, based solely on sales.

Helene’s operations generated $1,000,000 of apportionable income, and its sales
and payroll activity and average property owned in each of the three states is
as follows.

State
A

State
B

State
C

Totals

Sales

$450,000

$750,000

$300,000

$1,500,000

Payroll

100,000

150,000

50,000

300,000

Property

200,000

200,000

200,000

600,000

Helene’s apportionable income assigned to A is:

a.
$422,200.
b. $333,333.
c. $322,200.
d. $316,500.
e. $300,000.

1847. Question
MC #17
Simpkin Corporation owns manufacturing facilities in States A, B, and C. A uses
a three-factor apportionment formula under which the sales, property and
payroll factors are equally weighted. B uses a three-factor apportionment
formula under which sales are double-weighted. C employs a single-factor
apportionment factor, based solely on sales.

Simpkin’s operations generated $1,000,000 of apportionable income, and its
sales and payroll activity and average property owned in each of the three
states is as follows.

State
A

State
B

State
C

Totals

Sales

$450,000

$750,000

$300,000

$1,500,000

Payroll

100,000

150,000

50,000

300,000

Property

200,000

200,000

200,000

600,000

Simpkin’s apportionable income assigned to B is:

a.
$611,100.
b. $600,000.
c. $500,000.
d. $458,300.
e. $444,400.

1848. Question
MC #18
Cruz Corporation owns manufacturing facilities in States A, B, and C. A uses a
three-factor apportionment formula under which the sales, property and payroll
factors are equally weighted. B uses a three-factor apportionment formula under
which sales are double-weighted. C employs a single-factor apportionment
factor, based solely on sales.

Cruz’s operations generated $1,000,000 of apportionable income, and its sales
and payroll activity and average property owned in each of the three states is
as follows.

State
A

State
B

State
C

Totals

Sales

$450,000

$750,000

$300,000

$1,500,000

Payroll

100,000

150,000

50,000

300,000

Property

200,000

200,000

200,000

600,000

Cruz’s apportionable income assigned to C is:

a.
$1,000,000.
b. $430,542.
c. $333,333.
d. $200,000.
e. $0.

1849. Question
MC #19
Boot Corporation is subject to income tax in States A and B. Boot’s operations
generated $200,000 of apportionable income, and its sales and payroll activity
and average property owned in each of the states is as follows.

State
A

State
B

Totals

Sales

$200,000

$600,000

$800,000

Payroll

100,000

50,000

150,000

Property

200,000

50,000

250,000

How much more (less) of Boot’s income is subject to A income tax if, instead of
using an equally-weighted three-factor apportionment formula, A uses a formula
with a double-weighted sales factor?

a.
($50,000).
b. $50,000.
c. $16,100.
d. ($16,100).

1850. Question
MC #20
General Corporation is taxable in a number of states. This year, General made a
$100,000 sale from its A headquarters to an agency of the U.S. government.
State A applies a throwback rule. In which state(s) will the sale be included
in the sales factor numerator?

a.
$100,000 in A.
b. $50,000 in A, with the balance
exempted from other states’ sales factors under the Colgate doctrine.
c. $0 in A.
d. In all of the states, according to
the apportionment formulas of each, as the U.S. government is present in all
states.

1851. Question
MC #21
General Corporation is taxable in a number of states. This year, General made a
$100,000 sale from its A headquarters to a State B office of an agency of the
U.S. government. General has not established nexus with B. State A does not
apply a throwback rule. In which state(s) will the sale be included in the
sales factor numerator?

a.
In all of the states, according to the apportionment formulas of each, as the
U.S. government is present in all states.
b. $100,000 in A.
c. $100,000 in B.
d. $0 in both A and B.

1852. Question
MC #22
General Corporation is taxable in a number of states. This year, General made a
$100,000 sale from its A headquarters to a customer in B. This activity is not
sufficient for General to create nexus with B. State A applies a throwback
rule, but State B does not. In which state(s) will the sale be included in the
sales factor numerator?

a.
$0 in both A and B.
b. $100,000 in A.
c. $100,000 in B.
d. In both A and B, according to the
apportionment formulas of each.

1853. Question
MC #23
General Corporation is taxable in a number of states. This year, General made a
$100,000 sale from its A headquarters to a customer in B. This activity is not
sufficient for General to create nexus with B. State B applies a throwback
rule, but State A does not. In which state(s) will the sale be included in the
sales factor numerator?

a.
$0 in both A and B.
b. $100,000 in A.
c. $100,000 in B.
d. In both A and B, according to the
apportionment formulas of each.

1854. Question
MC #24
Britta Corporation’s entire operations are located in State A. Eighty percent
($800,000) of Britta’s sales are made in A and the remaining sales ($200,000)
are made in State B. B has not adopted a corporate income tax. If A has adopted
a throwback rule, the numerator of Britta’s A sales factor is:

a.
$0.
b. $200,000.
c. $800,000.
d. $1,000,000.

1855. Question
MC #25
The throwback rule requires that:

a.
Sales of tangible personal property are attributed to the state where they
originated, if the taxpayer is not taxable in the state of destination.
b. Sales of tangible personal property
are attributed to the seller’s state, even if the taxpayer is not taxable in
the state of destination.
c. Sales of services are attributed to
the state of commercial domicile.
d. Capital gain/loss is attributed to
the state of commercial domicile.

1856. Question
MC #26
Given the following transactions for the year, determine Comp Corporation’s D
payroll factor denominator. State D has adopted the principles of UDITPA.

Compensation of sales force

$ 700,000

Compensation paid to independent contractors

100,000

Compensation paid to managers of nonbusiness
rental property

200,000

Total compensation

$1,000,000

a.
$700,000.
b. $800,000.
c. $900,000.
d. $1,000,000.

1857. Question
MC #27
Judy, a regional sales manager, has her office in State X. Her region includes
several states, as indicated in the sales report below. Determine how much of
Judy’s $200,000 compensation is assigned to the payroll factor of State X.

State

Sales
Generated

Judy’s
Time Spent There

U

$1,000,000

15%

V

5,000,000

45%

X

2,000,000

40%

$8,000,000

100%

a.
$0.
b. $66,667.
c. $80,000.
d. $200,000.

1858. Question
MC #28
Trayne Corporation’s sales office and manufacturing plant are located in State
X. Trayne also maintains a manufacturing plant and sales office in State W. For
purposes of apportionment, X defines payroll as all compensation paid to
employees, including elective contributions to § 401(k) deferred compensation
plans. Under the statutes of W, neither compensation paid to officers nor contributions
to § 401(k) plans are included in the payroll factor. Trayne incurred the
following personnel costs.

State
X

State
W

Totals

Wages and salaries for employees other

than
officers

$ 500,000

$200,000

$ 700,000

Salaries for officers

300,000

300,000

Contributions to § 401(k) plans

200,000

50,000

250,000

Totals

$1,000,000

$250,000

$1,250,000

Trayne’s payroll factor for State X is:

a.
100.00%.
b. 80.00%.
c. 73.68%.
d. 71.43%.
e. 50.00%.

1859. Question
MC #29
Net Corporation’s sales office and manufacturing plant are located in State X.
Net also maintains a manufacturing plant and sales office in State W. For
purposes of apportionment, X defines payroll as all compensation paid to
employees, including contributions to § 401(k) deferred compensation plans.
Under the statutes of W, neither compensation paid to officers nor
contributions to § 401(k) plans are included in the payroll factor. Net
incurred the following personnel costs.

State
X

State
W

Totals

Wages and salaries for employees other

than
officers

$ 500,000

$200,000

$ 700,000

Salaries for officers

300,000

300,000

Contributions to § 401(k) plans

200,000

50,000

250,000

Totals

$1,000,000

$250,000

$1,250,000

Net’s payroll factor for State W is:

a.
50.00%.
b. 28.57%.
c. 26.32%.
d. 20.00%.
e. 0%.

1860. Question
MC #30
Bert Corporation, a calendar-year taxpayer, owns property in States M and O.
Both M and O require that the average value of assets be included in the
property factor. M requires that the property be valued at its historical cost,
and O requires that the property be included in the property factor at its net
depreciated book value.

Account
Balances at Beginning of Year

State
M

State
O

Totals

Inventories

$200,000

$300,000

$ 500,000

Building & machinery (cost)

700,000

300,000

1,000,000

Accumulated depreciation

(150,000)

(50,000)

(200,000)

Land

400,000

200,000

600,000

Totals

$1,150,000

$750,000

$1,900,000

Account
Balances at Year-End

State
M

State
O

Totals

Inventories

$ 400,000

$100,000

$ 500,000

Building & machinery (cost)

800,000

500,000

1,300,000

Accumulated depreciation

(300,000)

(100,000)

(400,000)

Land

400,000

200,000

600,000

Totals

$1,300,000

$700,000

$2,000,000

Annual rent payments

$ 50,000

$ 25,000

Bert’s M property factor is:

a.
75.0%.
b. 66.7%.
c. 64.9%.
d. 64.5%.

1861. Question
MC #31
Valdez Corporation, a calendar-year taxpayer, owns property in States M and O.
Both M and O require that the average value of assets be included in the
property factor. M requires that the property be valued at its historical cost,
and O requires that the property be included in the property factor at its net
depreciated book value.

Account
Balances at Beginning of Year

State
M

State
O

Totals

Inventories

$ 200,000

$300,000

$ 500,000

Building & machinery (cost)

700,000

300,000

1,000,000

Accumulated depreciation

(150,000)

(50,000)

(200,000)

Land

400,000

200,000

600,000

Totals

$1,150,000

$750,000

$1,900,000

Account
Balances at Year-End

State
M

State
O

Totals

Inventories

$ 400,000

$100,000

$ 500,000

Building & machinery (cost)

800,000

500,000

1,300,000

Accumulated depreciation

(300,000)

(100,000)

(400,000)

Land

400,000

200,000

600,000

Totals

$1,300,000

$700,000

$2,000,000

Valdez’s O property factor is:

a.
35.0%.
b. 37.2%.
c. 39.5%.
d. 53.8%.

1862. Question
MC #32
In the broadest application of the unitary theory, the U.S. unitary business
files a combined tax return using factors and income amounts for all
affiliates:

a.
Organized in the U.S.
b. Organized in NAFTA countries.
c. Organized anywhere in the world.
d. As dictated by the tax treaties
between the U.S. and the other countries.

1863. Question
MC #33
A taxpayer wishing to reduce the negative tax effects of the application of the
unitary theory might:

a.
Affiliate with a service division that shows an operating loss, like one in
research and development.
b. Acquire a unitary affiliate in a
country with a high wage structure.
c. Add a profitable entity to the
unitary group.
d. a. and b.

1864. Question
MC #34
Peete Corporation is subject to franchise tax in State Z. The tax is imposed at
a rate of 2% of the taxpayer’s net worth that is apportioned to the state by
use of a two factor (sales and property equally weighted) formula. The property
factor includes real and tangible personal property, valued at net book value
at the end of the taxable year.

Eighty percent of Peete’s sales are attributable to Z, and $200,000 of the net
book value of Peete’s tangible personal property is located in Z.

Determine the Z franchise tax payable by Peete this year, given the following
end-of-the year balance sheet.

Cash

$ 100,000

Equipment

$800,000

Accumulated depreciation

(200,000)

600,000

Furniture and fixtures

$150,000

Accumulated depreciation

(50,000)

100,000

Intangible assets

200,000

Total assets

$1,000,000

Accounts and taxes payable

$ 250,000

Long-term debt

300,000

Common stock

10,000

Additional paid-in capital

500,000

Retained earnings

(60,000)

Total liabilities and equity

$1,000,000

a.
$0, due to the negative retained earnings.
b. $20,000.
c. $7,200.
d. $4,860.

1865. Question
MC #35
When the taxpayer has exposure to a capital stock tax:

a.
The pricing of inventory sales should reflect no more than inflation increases.
b. Subsidiary operations should be
funded through direct capital contributions.
c. Expansions should be funded with
retained earnings.
d. Dividends should be paid regularly to
a parent based in a low-tax state.

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