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Exam 23: State and Local Taxes

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Question 41

True/False

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Federal/state adjustments correct for differences between two states tax laws.

A) True
B) False

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Question 42

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Which of the following isn't a requirement of Public Law 86-272?

A) The tax is based on net income.
B) The taxpayer sells only tangible personal property.
C) The taxpayer is an intrastate business.
D) The taxpayer is nondomiciliary.

E) All of the above
F) None of the above

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Question 43

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Which of the following regarding the state tax base is incorrect?

Which of the following is not a general rule for allocating nonbusiness income?

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

Public Law 86-272 protects a taxpayer from which of the following taxes?

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has payroll as follows: $\begin{array}{c}\begin{array}{lll}\text {Tennis Pro's}\\\text {Payroll:}\\\underline{\text { State }}\\\text { DC }\\\text {Georgia}\\\text {Virginia}\\\text {Other}\\\text {Totals}\\\end{array}\begin{array}{r}&&\end{array}\begin{array}{r}\\\\\text { PavroIl } \\\hline \$ 45,500 \\\$ 80,000 \\\$ 250,000 \\\underline{\$ 90,000} \\\$ 465,500\\\end{array}\end{array}$ The other total includes $10,000 of salary of a Virginia employee that works part time in another state. What is Tennis Pro's Virginia payroll numerator and payroll factor?

Which of the following sales is always subject to sales and use tax?

PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: $\begin{array} { l r l } \underline{\text { Item }} & \underline{\text { Amount }} & \underline{\text { Federal Treatment }} \\\text { Illinois Income Taxes } & \$ 33,333 & \text { Deducted on federal return } \\\text { Indiana Income Taxes } & \$ 18,500 & \text { Deducted on federal return } \\\text { Ohio Commercial Activity Tax } & \$ 4,000 & \text { Deducted on federal return } \\\text { Illinois Bond Interest } & \$ 10,000 & \text { Excluded from federal return } \\\text { Indiana Bond Interest } & \$ 15,000 & \text { Excluded from federal return } \\\text { Federal T-Note Interest } & \$ 2,500 & \text { Included on federal return }\end{array}$ PWD's Federal Taxable Income was $100,000. Calculate PWD's Illinois state tax base.

Purchases of inventory for resale are typically exempt from sales and use taxes.

The Mobil decision identified three factors to determine whether a group of companies are unitary.

The primary purpose of state and local taxes is to raise revenue to finance state and local government.

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, Wisconsin, and Wyoming. 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:

The sales and use tax base varies from state to state.

Which of the following states is not asserting economic nexus?

Interest and dividends are allocated to the state of commercial domicile.

Business income is allocated to the state of commercial domicile.

Assume Tennis Pro attends a sports equipment expo in Washington State. Assume this activity creates nexus of the Business and Occupation (B&O) tax. Assume the tax is .5% of gross receipts for retailers and 1.5% of gross receipts on services. If Tennis Pro has $20,000 of Washington retail sales and $2,000 of services performed, calculate Tennis Pro's B&O tax.

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

In recent years, states are weighting the sales factor because it is easier to calculate.