13.5 - Multiple Jurisdictions Flashcards
What is a tax jurisdiction?
- Geographic area with its own distinct set of tax rules and regulations
Public Law 86-272
What does Public Law 86-272 state regarding presence in a taxing state?
- Minimum presence in the taxing state by the nonresident must be established before a state can tax a nonresident
Public Law 86-272
Define Nexus
sufficient presence in a state to tax
Public Law 86-272
Identify 3 activities that do not establish Nexus according to Public Law 86-272
- Nexus not established if:
- Activity limited to solicitation of orders for tangible personal property
- Orders are sent out of state for approval or rejection
- Orders are filled by shipment or delivery from a point outside the state if approved
Do protected in-state activities establish nexus?
No
Identify protected in-state activities (will not establish nexus)
- Soliciting orders for sale by any type of advertising
- Soliciting orders by an in-state resident with only an “in-home” office
- Carrying free samples and promotional materials for display or distribution
- Furnishing display racks & advising customers of products without charge
- Providing automobiles for conducting protected activities
- Passing orders, inquiries and complaints on to the home office
- Missionary sales activities
- (i.e., manufacturers solicitation of retailers to buy the manufacturer’s goods from the manufacturer’s wholesale customers)
- Coordinating shipment / delivery and providing related information without charge
- Checking customers’ inventories
- Maintaining a sample / display room at one location for less than 14 days during the tax year
- Recruiting, training and evaluating sales personnel
- Mediating customer complaints solely for ingratiating the sales personnel with the customer and facilitating order request
- Owning, leasing, using or maintaining personal property for use in the employee’s “in-home” office or automobile that is solely limited to the conducting of protected activities
Do “unprotected” in-state activities create nexus?
Yes
Identify “unprotected” in-state activities that create nexus
- Making repairs or performing maintenance or service on property sold or to be sold
- Collecting on accounts
- Investigating creditworthiness
- Installing a product at or after shipment or delivery
- Conducting training courses, seminars or lecturers for non-soliciting personnel
- Providing technical assistance or service for purposes other than the facilitation of the solicitation of orders
- Engineering assistance or design service
- Investigating, handling or otherwise assisting in resolving customer complaints
- Approving or accepting orders
- Repossessing property
- Securing deposits on sales
- Picking up or replacing damaged or returned property
- Hiring, training or supervising personnel
- Maintaining sample or display room at any one location in excess of 14 days during the tax year
- Carrying samples for sale, exchange, or distribution in any manner for consideration or other value
Allocation of Non-business Income:
Identify the 4 types of non-business income
- Net rents and royalties
- Capital gains and losses
- Interest and dividends
- Patent and copyright royalties
Allocation of Non-business Income:
How is non-business income allocated for net rents and royalties affiliated with real property?
Allocation based off location of property
Allocation of Non-business Income:
How is non-business income allocated for net rents and royalties affiliated with tangible personal property?
allocation based off proportional use or commercial domicile
Allocation of Non-business Income:
How is non-business income allocated for capital gains and losses affiliated with real property?
allocation based off location of property
Allocation of Non-business Income:
How is non-business income allocated for capital gains and losses affiliated with tangible personal property?
allocation based off location or commercial domicile
Allocation of Non-business Income:
How is non-business income allocated for capital gains and losses affiliated with intangible personal property?
allocation based off commercial domicile
Allocation of Non-business Income:
How is non-business income (interest and dividends) allocated for multiple jurisdictions?
Based off commercial domicile
Allocation of Non-business Income:
How are patent and copyright royalties (non-business income) allocated for multiple jurisdictions?
proportional use or commercial domicile
Apportionment of Business Income to Taxing State Formula:
What is the apportionment of business income to taxing state formula?
(Property Factor + Payroll Factor + Sales Factor) / 3
Property Factor:
What is the purpose of the property factor in the “apportionment of business income to taxing state formula”?
- Determines the in-state use of real and tangible personal business property
Property Factor:
How is property owned by the taxpayer valued in the property factor?
- Property owned by taxpayer is valued at cost
- Not AB (no depreciation reduction)
Property Factor:
How is property rented by the taxpayer valued?
- Property rented by taxpayer is valued at 8x’s the net annual rental rate
- Rate paid minus rate received from sub-rentals
Property Factor:
What is the formula for the property factor calculation?
Average value of in-state real & tangible personal property used / Average value of all real & tangible personal property used
Payroll Factor:
What is the purpose of the payroll factor?
- Payroll factor uses amounts determined by the accounting methods of the business so that accruals are treated as paid
Payroll Factor:
How is payroll attributed to management / maintenance or nonbusiness property treated in the payroll factor?
excluded from the formula
Payroll Factor:
Identify the payroll factor formula
in-state compensation paid / total compensation paid
Sales Factor:
What is the net sales factor used for?
Business income only
Sales Factor:
Identify the sales factor formula
in-state sales / total sales
