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Unformatted text preview: 16-1Chapter 16 Multistate Corporate Taxation (2011 edition) updated: March 4, 2011Learning Objectives: Understand the consequences of state corporate income taxes Define nexus & explain its role in state income taxation Distinguish between apportionment and allocation of a multi-state cooperations taxable income Describe the sales, payroll, and property apportionment factors Apply the unitary theory to state corporate income taxation Understand the states income tax treatment of S corporations, partnerships and LLCs Describe some other commonly encountered state & local taxes I. Overview State Corporate Income Taxation A. State corporate income taxation is widespread 1. forty-six states and the District of Columbia impose a tax based on a corporations taxable income 2. the four holdouts with no state corporate income tax include: Nevada, South Dakota (exception banks), Washington, and Wyoming Additionally, 45 states containing over 7,600 local jurisdictions collect sales & use tax. Here are the definitions of sales & use tax from the Florida Department of Revenue web site: Sales tax Each sale, admission charge, storage, or rental is taxable unless the transaction is exempt. Sales tax is added to the price of the taxable goods or service and collected from the purchaser at the time of sale. Florida's general sales tax rate is 6 percent. In addition, there is a discretionary sales surtax imposed by many Florida counties (ranging from 0.5% to 1.5%) Use tax Use tax is due on the use or consumption of taxable goods or services when sales tax was not paid at the time of purchase. For example: If you buy a taxable item in Florida and didn't pay sales tax, you owe use tax. If you buy an item tax-exempt intending to resell it and then use the item in your business or for personal use, you owe use tax. If you buy a taxable item outside Florida and bring or have it delivered into this state and you didn't pay sales tax on the item, you owe use tax.16-2B. General approach most states corporate income tax systems piggyback onto the Federal income tax base 1. most states have adopted part, or all, of the Federal income tax code; in general the IRC is used to define: gross income, exclusions, and deductions State taxable income = Federal taxable income +/ state tax adjustments 2. typically, the accounting period (calendar/fiscal year) and accounting methods (cash/accrual/hybrid, etc.) used for Federal purposes are also used for state tax return computations 3. unlike Federal taxes, most states have adopted a proportional tax system there is little progressitivity in state corporate income taxes 4. unlike Federal multi-national taxes, which use complex sourcing & transfer pricing rules, most states use some combination of apportionment & allocation to assignthe corporations total income to the individual states. The typical apportionment formula is based on some combination of:...
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