1861. CHAPTER 16—MULTISTATE CORPORATE TAXATION 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. Account Balances at Beginning of Year State M State O Totals Inventories $ 200 000 $300 000 $ 500 000 Building & machinery (cost) 700 000 300 000 1 000 000 Accumulated depreciation (150 000) (50 000) (200 000) Land 400 000 200 000 600 000 Totals $1 150 000 $750 000 $1 900 000 Account Balances at Year-End State M State O Totals Inventories $ 400 000 $100 000 $ 500 000 Building & machinery (cost) 800 000 500 000 1 300 000 Accumulated depreciation (300 000) (100 000) (400 000) Land 400 000 200 000 600 000 Totals $1 300 000 $700 000 $2 000 000 Valdez’s O property factor is: a. 35.0%. b. 37.2%. c. 39.5%. d. 53.8%. 1862. CHAPTER 16—MULTISTATE CORPORATE TAXATION 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. CHAPTER 16—MULTISTATE CORPORATE TAXATION 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. CHAPTER 16—MULTISTATE CORPORATE TAXATION 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. Cash $ 100 000 Equipment $800 000 Accumulated depreciation (200 000) 600 000 Furniture and fixtures $150 000 Accumulated depreciation (50 000) 100 000 Intangible assets 200 000 Total assets $1 000 000 Accounts and taxes payable $ 250 000 Long-term debt 300 000 Common stock 10 000 Additional paid-in capital 500 000 Retained earnings (60 000) Total liabilities and equity $1 000 000 a. $0 due to the negative retained earnings. b. $20 000. c. $7 200. d. $4 860. 1865. CHAPTER 16—MULTISTATE CORPORATE TAXATION 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. 1866. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #36 In most states a limited liability company (LLC) is subject to the state income tax: a. As a flow-through entity similar to its Federal income tax treatment. b. As though it were a unitary business. c. As though it were a C corporation. d. LLCs typically are exempted from state income taxation. 1867. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #37 A state sales tax usually falls upon: a. Sales of groceries. b. Sales made to out-of-state customers. c. Sales made to the U.S. Department of Education. d. Sales made to the ultimate consumer of the product or service. 1868. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #38 A state sales tax usually falls upon: a. The sale of a used dinette set sold at a rummage sale. b. The sale of a dinette set by the manufacturer to the retailer. c. The purchase of a Bible by a member at the church’s bookstore. d. The sale of a case of Bibles by the publisher to a church bookstore. e. All of the above are exempt transactions. 1869. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #39 A use tax applies when a State A resident purchases: a. A new automobile from a State A dealership. b. A used automobile from the web site of a State A dealership. c. A new automobile from a State B dealership then using the car back at home. d. Hardware from sears.com rather than at the Best Buy store at the local mall. 1870. CHAPTER 16—MULTISTATE CORPORATE TAXATION Question MC #40 In conducting multistate tax planning the taxpayer should: a. Review tax opportunities in light of their effect on the overall business. b. Exploit inconsistencies among the taxing statutes and formulas of the states. c. Consider the tax effects of the plan after accounting for any new compliance and administrative costs that it generates. d. All of the above are true.
