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Exam 23: State and Local Taxes

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Question 1

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Businesses must collect sales tax only in states where it has sales tax nexus.

A) True
B) False

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Question 2

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Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis pro decides to expand into Pennsylvania during the current year and try some new sales techniques. Tennis pro advertises on local radio and television as well as national tennis magazines sent into PA. Salesmen give away promotional materials and occasionally sell demonstration models to local shop employees to build goodwill for Tennis Pro. It holds sales meetings at rented space in local hotels. Personnel occasionally fix minor problems such as tape and strings without charge. One employee performed a credit check for a major account who needed merchandise immediately. Each sales person is allowed an allowance for a car and office equipment to be maintained in an in-home office. Do any of Tennis Pro activities have the potential to create income tax nexus?

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The sale of demonstration models, repair...

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Question 3

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Super Sadie, Incorporated manufactures sandals and distributes them across the southwestern United States. Super Sadie is incorporated and headquartered in Arizona. It has product sales to customers in Arizona, California, Colorado, New Mexico, Oregon, Texas, and Utah. It has sales personnel in California, Colorado, and New Mexico. It also owns an office building in Arizona and a Warehouse in Texas. Determine the states in which Super Sadie has sales tax nexus.

Sales personnel investigating a potential customer's credit worthiness generally are deemed to exceed protected boundaries of solicitation.

Handsome Rob provides transportation services in several western states. Rob has sales as follows: Rob is a California Corporation and has the following facts: Rob has income tax nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving through Oregon. California payroll includes $200,000 of payroll for services provided in Nevada by California based drivers. What is Rob's California sale numerator?

Assume Tennis Pro discovered that one salesman has gone into Arkansas once each year of the past 4 years and performed activities creating both sales tax nexus and income tax nexus. Assume that Arkansas sales were $25,000 each year. Assume that Arkansas business income would be 200,000 each year and that Tennis Pro's Arkansas apportionment percentage would be 1 percent. Assume there would be no Arkansas nonbusiness income. Assume that Arkansas sales and use tax rate was 6.5 percent and corporate income tax rate was 5 percent. What would Tennis Pro's Arkansas sales and use tax and income tax liability be ignoring any possible penalties and interest?

Businesses subject to income tax in more than one jurisdiction have the right to apportionment.

State tax law is comprised solely of legislative authority.

Wyoming imposes an income tax on corporations.

Nondomiciliary businesses are subject to tax everywhere they do business.

Which of the following sales is always subject to sales and use tax in a state that assesses a sales and use tax?

Which of the following is incorrect regarding nondomiciliary businesses?

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has property as follows: Tennis Pro also rents Virginia property at an annual rent of $24,000. What is Tennis Pro's Virginia property numerator and property factor?

Moss Incorporated is a Washington corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: Moss' Oregon depreciation was $145,500. Moss' Federal Taxable Income was $549,743. Calculate Moss' Oregon state tax base.

Which of the following statements regarding income tax commercial domicile is incorrect?

The Quill decision reaffirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

Businesses engaged in interstate commerce are subject to income tax in every state in which they operate.

The trade-show rule allows businesses to maintain a sample room for up to four weeks per year.

Big Company and Little Company are both owned by Mrs. Smith. Big and Little file a consolidated federal tax return. Big manufactures office paper and other paper supplies and is based in Washington. Little operates a logging operation in Montana. Sixty percent of Little's sales are made to Big. Ten percent of Big's raw materials come from Little. There are no common officers or board members. There are no common service providers. What are the factors for and against filing a unitary tax return?

List the steps necessary to determine an interstate businesses' state income tax liability.