Test 1 Notes

Question 1

2 Major types of Tax

Answer 1

1. Income Tax

2. Sales/Use Tax

Question 2

No individual income tax

Answer 2

Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

Question 3

Tax only dividend and interest income

Answer 3

Tennessee & New Hampshire

Question 4

No corporate Income Tax

Answer 4

Nevada
South Dakota
Wyoming

Question 5

No statewide sales tax

Answer 5

Alaska
Delaware
Montana
New Hampshire
Oregon

Question 6

Ga is a line 28 or 30 state

Answer 6

Line 30

Question 7

State tax framework

Answer 7

1. adjustments to line 20 or 30
2. 2 Buckets: Business vs. Non-Business Income
3. What is the apportionment %
4. Apply apport. % to business income
5. If non-business income applies to your state, then add it back = T.I
6. State tax rate mult. by T.I.
7. Tax Liability
8. Any credits?

Question 8

Common Adj: Add back

Answer 8

1. Interest Income from state or municipal bonds
2. State income tax paid
3. Federal bonus depreciation
4. Sec. 179 asset expensing
5. Expenses related to state credits
6. Royalty and Interest expense
7. cancellation of indebtness income

Question 9

Common Adj: Suubtract

Answer 9

1. Interest on federal debt obligations: ex. US T-Notes
2. State DRD: line 28 states only
3. Federal Subpart F income
4. NOL
5. Sect 78 gross up income for deemed paid foreign taxes

Question 10

Business income is apportioned or allocated

Answer 10

apportion among states

Question 11

Non-business income is apportioned or allocated

Answer 11

allocated to state of domicile

Question 12

UDITPA Sect. 1(a)

Answer 12

Business income = normal day-to-day operations

Question 13

UDITPA Sect 1(e)

Answer 13

All income other than business income is non-business income

Question 14

UDITPA Sect 1(e): Transactional Test

Answer 14

looks at frequency and regularity of transaction

Question 15

UDITPA Sect 1(e): Functional Test

Answer 15

looks at the income producing products/asset & its relation to the business
i.e where did you get the money from

Question 16

3 apportionment factors and equation

Answer 16

1. property
2. payroll
3. sales
   “ in state / total “

Question 17

single sales factor

Answer 17

explain

Question 18

property rules factor

Answer 18

1. All property owned or rented
2. real & tangible property
3. excluding intangible property (i.e. A/R & Marketable secur.
4. Property valued at average original cost plus cost of additions & improvements
5. Rented Property: 8 times annual rental cost

Question 19

Payroll factor sourcing

Answer 19

1. some states exclude executive compensation

2. payroll to an employee in a no nexus state/ PL 86-272: state is included in the denominator

Question 20

Prorata

Answer 20

use the % of the product that was made in each of the states

Question 21

UDITPA Sect 17B

Answer 21

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

Question 22

Market Based

Answer 22

based on where the customer is

Question 23

Cost of Performance (COP)

Answer 23

source the sales of services where the work is being performed

Prorate or UDITPA Sect 17B: ALL or NOTHING

Question 24

Nowhere income

Answer 24

sales in a state, but not taxed

Question 25

2 Responses to nowhere income

Answer 25

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

Question 26

Due Process

Answer 26

Minimum connection/contact

Question 27

Commerce Clause

Answer 27

Physical presence and substantial nexus

Question 28

Temporary physical presence

Answer 28

just explain

Question 29

Affiliate nexus

Answer 29

just explain

Question 30

Attributional nexus

Answer 30

just explain

Question 31

4 Prong Test that must be met for CC on Income tax

Answer 31

1. Substantial nexus 2. Tax is fairly apportioned 3. Tax doesn't discriminate 4. Tax is fairly related

Question 32

PL 86-272

Answer 32

1. state can't impose an income tax on any person 2. mainly for companies that solicit sales 3. orders must be shipped from outside the state 4. applies only to income tax

Question 33

PL 86-272 Allowable Activities

Answer 33

1. Conducting solicitation by using computer in state 2. Salesmen drive company cars 3. setting up display racks

Question 34

PL 86-272 Non-allowable activities

Answer 34

1. collecting outstanding accounts: not furthering the sale 2. Installing property in state 3. Repair property in state

Question 35

State reporting methods

Answer 35

1. state combines "Unitary" group reporting 2. State separate reporting 3. State consolidated