Test 1 Notes Flashcards
2 Major types of Tax
- Income Tax
2. Sales/Use Tax
No individual income tax
Alaska Florida Nevada South Dakota Texas Washington Wyoming
Tax only dividend and interest income
Tennessee & New Hampshire
No corporate Income Tax
Nevada
South Dakota
Wyoming
No statewide sales tax
Alaska Delaware Montana New Hampshire Oregon
Ga is a line 28 or 30 state
Line 30
State tax framework
- adjustments to line 20 or 30
- 2 Buckets: Business vs. Non-Business Income
- What is the apportionment %
- Apply apport. % to business income
- If non-business income applies to your state, then add it back = T.I
- State tax rate mult. by T.I.
- Tax Liability
- Any credits?
Common Adj: Add back
- Interest Income from state or municipal bonds
- State income tax paid
- Federal bonus depreciation
- Sec. 179 asset expensing
- Expenses related to state credits
- Royalty and Interest expense
- cancellation of indebtness income
Common Adj: Suubtract
- Interest on federal debt obligations: ex. US T-Notes
- State DRD: line 28 states only
- Federal Subpart F income
- NOL
- Sect 78 gross up income for deemed paid foreign taxes
Business income is apportioned or allocated
apportion among states
Non-business income is apportioned or allocated
allocated to state of domicile
UDITPA Sect. 1(a)
Business income = normal day-to-day operations
UDITPA Sect 1(e)
All income other than business income is non-business income
UDITPA Sect 1(e): Transactional Test
looks at frequency and regularity of transaction
UDITPA Sect 1(e): Functional Test
looks at the income producing products/asset & its relation to the business
i.e where did you get the money from
3 apportionment factors and equation
- property
- payroll
- sales
“ in state / total “
single sales factor
explain
property rules factor
- All property owned or rented
- real & tangible property
- excluding intangible property (i.e. A/R & Marketable secur.
- Property valued at average original cost plus cost of additions & improvements
- Rented Property: 8 times annual rental cost
Payroll factor sourcing
- some states exclude executive compensation
2. payroll to an employee in a no nexus state/ PL 86-272: state is included in the denominator
Prorata
use the % of the product that was made in each of the states
UDITPA Sect 17B
If income producing property is made in multiple states then use ALL or NOTHING
look to see where the highest % of the work is being performed
Market Based
based on where the customer is
Cost of Performance (COP)
source the sales of services where the work is being performed
Prorate or UDITPA Sect 17B: ALL or NOTHING
Nowhere income
sales in a state, but not taxed
2 Responses to nowhere income
Throwback Rule: if you have income in a state that isn’t being taxed, then throw it back to the home state
Throwout Rule: not being taxed, then throw it out of the denominator
Due Process
Minimum connection/contact
Commerce Clause
Physical presence and substantial nexus
Temporary physical presence
just explain
Affiliate nexus
just explain
Attributional nexus
just explain
4 Prong Test that must be met for CC on Income tax
- Substantial nexus
- Tax is fairly apportioned
- Tax doesn’t discriminate
- Tax is fairly related
PL 86-272
- state can’t impose an income tax on any person
- mainly for companies that solicit sales
- orders must be shipped from outside the state
- applies only to income tax
PL 86-272 Allowable Activities
- Conducting solicitation by using computer in state
- Salesmen drive company cars
- setting up display racks
PL 86-272 Non-allowable activities
- collecting outstanding accounts: not furthering the sale
- Installing property in state
- Repair property in state
State reporting methods
- state combines “Unitary” group reporting
- State separate reporting
- State consolidated
