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Exam 16: Multi-Juris-Dictional Taxation

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Question 51

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The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

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B) False

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Question 52

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Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice.In what areas might your Federal income tax knowledge also be applicable in your new assignment?

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Interactions between state and Federal i...

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Question 53

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Determine Drieser's sales factors for States K, M, and N. Drieser Corporation's manufacturing facility, distribution center, and retail store are located in State K.Drieser sells its products to residents located in States K, M, and N. Sales to residents of K are conducted through a retail store.Sales to residents of M are obtained by Drieser's sales representative, who has the authority to solicit, accept, and approve sales orders in State M.Residents of N can purchase Drieser's product only if they place an order online and arrange to take delivery of the product at Drieser's shipping dock. Drieser's sales this year were reported as follows. $\begin{array}{lr}\text { Sales to residents of State K } & \$ 1,000,000 \\\text { Sales to residents of State M } & 600,000 \\\text { Sales to residents of State N } & 900,000\\\text { Total }&\$2,500,000\end{array}$ Drieser's activities within the three states are limited to those described above.All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales, property, and payroll are equally weighted.State K sources dock sales to the destination state.

A state can levy an income tax on a business only if the business was incorporated in the state.

Which of the following foreign taxes paid by a U.S.corporation may be eligible for the foreign tax credit?

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.

The following persons own Schlecht Corporation, a non-U.S.entity. $\begin{array} { l r } \text { Jim, U.S. individual } & 35 \% \\\text { Gina, U.S. individual } & 15 \% \\\text { Marina, U.S. individual } & 8 \% \\\text { Pedro, U.S. individual } & 12 \% \\\text { Chee, non-U.S.individual } & 30 \%\end{array}$ ? None of the shareholders are related.Subpart F income for the tax year is $300,000.No distributions are made.Which of the following statements is correct?

Discuss how a multistate business divides up its corporate taxable income among the states in which it operates.Hint: use the terms allocation and apportionment in your comments.

Which of the following determinations requires knowing the amount of one's foreign-source gross income?

Chipper, Inc., a U.S.corporation, reports worldwide taxable income of $1 million, including a $300,000 dividend from Emma, Inc., a foreign corporation.Chipper's U.S.tax liability before FTC is $340,000.Chipper owns 20% of Emma.Emma's E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P.If Chipper elects the FTC, its U.S.gross income with regard to the dividend from Emma is:

Kipp, a U.S.shareholder under the CFC provisions, owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000, Kipp is taxed on receipt of a constructive dividend of $80,000.

Peanut, Inc., a U.S.corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000, and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B.For the taxable year, the corporation's activities within the two states were as follows. ? $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Total } \\\text { Sales } & \$ 500,000 & \$ 1,500,000 & \$ 2,000,000 \\\text { Property } & 250,000 & - 0 - & 250,000 \\\text { Payroll } & 200,000 & 300,000 & 500,000\end{array}$ ? Dott has determined that it is subject to tax in both A and B.Both states utilize a three-factor apportionment formula which equally weights sales, property, and payroll.The rates of corporate income tax imposed in A and B are 7% and 10%, respectively.Determine Dott's state income tax liability.

Adams 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, Adams has rented 20% of its Y facility to an unaffiliated corporation.Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. ​ Adams is incorporated in Y.For X and Y purposes, rental income is classified as allocable nonbusiness income.By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y. ​ Adams's income attributed to X is:

If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.

The property factor includes land and buildings used for business purposes.

Milt Corporation owns and operates two facilities that manufacture paper products.One of the facilities is located in State D, and the other is located in State E.Milt generated $1,200,000 of taxable income, comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from the sale of nonbusiness property located in E.E does not distinguish between business and nonbusiness property.D apportions business income.Milt's activities within the two states are outlined below. ? $\begin{array} { l r r r } & \text { State D } & \text { State E } & \text { T otal } \\\text { Sales of paper products } & \$ 4,500,000 & \$ 1,500,000 & \$ 6,000,000 \\\text { Property } & 3,500,000 & 2,500,000 & 6,000,000 \\\text { Payroll } & 1,500,000 & 1,000,000 & 2,500,000\end{array}$ ? Both D and E utilize a three-factor apportionment formula, under which sales, property, and payroll are equally weighted.Determine the amount of Milt's income that is subject to income tax by each state.

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z.Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation.Chipper's sales, payroll, and property among the states include the following. $\begin{array} { l r r r } & \text { State X } & \text { State Z } & \text { Totals } \\\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 3,000,000 \\\text { Property } & 200,000 & 2,300,000 & 2,500,000 \\\text { Payroll } & 100,000 & 1,900,000 & 2,000,000\end{array}$ ? X utilizes a sales-only factor in its three-factor apportionment formula.How much of Chipper's taxable income is apportioned to X?

Your client holds foreign tax credit (FTC) carryforwards, i.e., it is in an "excess credit" position.Give at least three planning ideas that the client should implement, so as to free up the suspended FTCs.