Norman Corporation owns and operates two manufacturing facilities

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.

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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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.