In the United States, corporations are subject only to taxes imposed by the federal government. True False
The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.
If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax, the after-tax cost of the state tax is $13,000.
A corporation is usually subject to tax by any state in which it engages in any business transactions. True False
Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.
Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates. True False
According to Public Law 86-272, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.
If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.
Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.
10. The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.
11. The UDITPA formula for apportioning income among states is based on four equally weighted factors.
12. The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.
13. The sales factor in the UDITPA state income tax apportionment formula equals out-of-state sales divided by total sales.
14. All states assessing an income tax use the same formula for apportionment purposes. True False
15. The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.
16. Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%. True False
17. BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.
18. Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will minimize state taxes if it increases the compensation paid to its employees in Alabama.
19. Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will minimize state taxes if it constructs a new manufacturing plant in Colorado. True False
20. International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.
21. A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.
22. The United States taxes its citizens on their worldwide incomes. True False
23. Under the U.S. tax system, a domestic corporation pays U.S. tax only on the portion of its business income earned in the United States.
24. A U.S. taxpayer can make an annual election to take a credit or a deduction for foreign income taxes paid.
25. Under most tax treaties, income attributable to a permanent establishment through which a foreign taxpayer conducts business can be taxed only by the taxpayer's country of residence....
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