Chapter+16+_International+Taxation_ - Chapter 16 Multijurisdictional Taxation Multijurisdictional Issues State and Local Taxation Chapter 25 State

Chapter+16+_International+Taxation_ - Chapter 16...

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Chapter 16Multijurisdictional Taxation
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Multijurisdictional Issues –State and Local TaxationChapter 25
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State Income Taxationsquare646 states and District of Columbia impose a tax based on taxable incomerhombus6Majority of states “piggyback” onto Federal income tax base3pentastar2Essentially, they have adopted part or all of the Federal tax provisions
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square6Individual income taxsquare6Corporate income taxsquare6Sales taxGross receipts taxsquare6Personal property taxsquare6Unemployment insurance taxsquare6Use taxExcise taxTypes of State and Local Taxessquare6Gross receipts taxsquare6Franchise taxsquare6Real property taxsquare6Excise taxsquare6Transfer taxsquare6Severance taxChapter 25, Exhibit 17a
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Types of State and Local TaxesTypes of TaxDescription of TaxIndividual Income TaxTax imposed on taxable income of state residents and nonresidentsCorporate Income TaxTax imposed on taxable income of corporations conducting business in the stateSales TaxTax levied on retail salesGross Receipts TaxTax levied on the total revenue of a business operating in the stateChapter 25, Exhibit 17bGross Receipts TaxTax levied on the total revenue of a business operating in the stateFranchise TaxTax on the right to conduct business in the stateReal Property TaxTax on the assessed value of land and improvements in the taxing jurisdiction
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Types of State and Local TaxesTypes of TaxDescription of TaxPersonal Property TaxTax on the assessed value of personalty located or used in the taxing jurisdictionUnemployment Insurance TaxTax on an employee’s wages; designed to fund state unemployment programsUse TaxA tax on property purchased outside a taxing jurisdiction but used in the taxing jurisdiction that has not otherwise been subject to a sales taxChapter 25, Exhibit 17cExcise TaxA tax typically imposed on sales of alcohol, tobacco, and gasolineTransfer TaxesIncluded in this category of taxes are gift, estate, and inheritance taxes and taxes imposed on sales of real propertySeverance TaxTax imposed on the right to extract or sell natural resources from the jurisdiction
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Corporate State Income Tax Formula for Multistate CorporationFederal income tax base+State adjustments (such as interest on state and local bonds)-State adjustments (such as interest on federal obligations)Income tax base to be allocated and apportioned-Allocable income(income specifically allocated to particular states)Total income eligible for overall apportionmentx State apportionment percentageState apportioned income+ Income specifically allocated to the stateState income tax basex State's income tax rateTentative state income tax-Tax creditsState income tax liabilityN.B.: State taxable income is composed of income specifically allocable to the state, plus a percentage of residual income not specifically allocable to any state.
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Nexus for Income Tax Purposes square6Nexus is the degree of business activity which must be present before a state can impose tax on an out-of-state entity’s incomesquare6Sufficient nexus typically exists if:rhombus6
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