State and Local Taxation

Question 1

What are excise taxes?

Answer 1

• Taxes levied on quantity of an item or sales price

- Ex. tax on gasoline, cigarettes, alcohol

Question 2

What are foreign corporations for state and local taxation purposes?

Answer 2

-Corporations incorporated in another state

Question 3

What are the four tests to determine jurisdiction to tax?

Answer 3

• Business activity must have substantial nexus with state
• Tax must be fairly apportioned
• Tax cannot discriminate against interstate commerce
• Tax must be fairly related to services the state provides

Question 4

In what situations does nexus not exist?

Answer 4

If activity in that state limited to:

  1) Soliciting sales of tangible property approved and shipped outside the state
  2) Advertising
  3) Determining reorder needs of customers
  4) Furnishing autos to sales staff

Question 5

What does nexus apply and not apply to?

Answer 5

-Applies to sales of tangible personal property and not to sale of services or leasing or renting of property

Question 6

How often is nexus determined?

Answer 6

-On a year by year basis

Question 7

If more than one state has nexus to tax what must happen?

Answer 7

• Income must be apportioned among states

- Nonbusiness income usually allocated to state of incorporation

Question 8

What is business income for nexus purpose?

Answer 8

• Income from regular business operations (transactional test)
• Income from sale of property that is an integral part of the business (functional test)

Question 9

What are the typical factors by which business income is apportioned?

Answer 9

-Sales, property, and payroll

Question 10

How do you calculate the property factor?

Answer 10

• Avg value of property in state / Value of all property

- Use book value