ch13 - H Chapter Thirteen H STATE AND LOCAL TAXATION TEST...

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H Chapter Thirteen H STATE AND LOCAL TAXATION TEST BANK True or False 1. States generally impose a capital based franchise tax in lieu of a tax based on net income. 2. X purchases goods for resale. X will generally be liable for sales tax on such purchases. 3. Property taxes are typically imposed based on the historical cost of assets. 4. A corporation must own property within a state in order for nexus to exist. 5. P.L. 86-272 is applicable only to state income taxes. 6. Furnishing a salesperson with a company car will generally not cause a foreign corporation to become taxable in the state in which the salesperson solicits orders. 7. Consigning property to an independent contractor will not create nexus under P.L. 86-272. 8. Most states begin with federal taxable income (line 28 or 30 of page 1, Form 1120) as the starting point for computing state taxable income. 9. Most states allow a deduction for state income taxes in computing state taxable income. 10. Most states allow an exclusion for interest on U.S. government obligations in computing state taxable income. 11. Passive income, such as interest, dividends, rents, and royalties, always constitutes nonbusiness income. 12. Business income is allocated whereas nonbusiness income is apportioned. 13. Most states employ a two-factor apportionment formula based on sales and property. 14. Y Corp. ships goods from its manufacturing plant in State A to a customer in State B. Y Corp. is taxable in both States A and B. For purposes of the sales factor, the sales are attributed to State B. 15. Y Corp. ships goods from its manufacturing plant in State A to a customer in State B. Y Corp. is taxable only in State A. State A employs a throwback rule For purposes of the sales factor, the sales are not attributed to either state. 16. The property factor is generally calculated based on the net book value of property at year end. 13-1
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17. Leased property is generally not taken into account in computing the property factor. 18. Employee X spends one-half her time in State A and one-half her time in State B. For purposes of the payroll factor, her compensation should be allocated equally to States A and B. 19. For purposes of the payroll factor, ‘‘compensation’’ generally includes the fair value of nontaxable fringe benefits. 20. Corporations X and Y comprise a unitary business. Corporation X operates only in State A, while Corporation Y operates only in State B. Both states impose a state income tax and employ the unitary concept. A portion of Corporation X’s income will be taxed in State B. 21. Where consolidated returns are required for state purposes, they include only those members of the affiliated group that possess nexus with the taxing state. 22.
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This note was uploaded on 07/26/2011 for the course TAX 772 taught by Professor Ber during the Spring '11 term at Hartford.

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ch13 - H Chapter Thirteen H STATE AND LOCAL TAXATION TEST...

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