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What is the correct formula for the traditional equally-weighted three-factor apportionment?

  • App't Factor = 1/4(Sales Factor) + 1/2(Payroll Factor) + 1/4(Property Factor)
  • App't Factor = 1/3(Sales Factor) + 1/3(Payroll Factor) + 1/3(Property Factor) (correct)
  • App't Factor = 2/5(Sales Factor) + 1/5(Payroll Factor) + 2/5(Property Factor)
  • App't Factor = 1/2(Sales Factor) + 1/4(Payroll Factor) + 1/4(Property Factor)

    • Which of the following factors is NOT typically included in the apportionment formula?

  • Payroll Factor
  • Sales Factor
  • Property Factor
  • Revenue Factor (correct)

    • In a double-weighted sales factor formula, how is the apportionment factor calculated?

  • App't Factor = 3/4(Sales Factor) + 1/8(Payroll Factor) + 1/8(Property Factor)
  • App't Factor = 2/4(Sales Factor) + 1/4(Payroll Factor) + 1/4(Property Factor) (correct)
  • App't Factor = 1/2(Sales Factor) + 1/2(Payroll Factor)
  • App't Factor = 1/3(Sales Factor) + 1/3(Payroll Factor) + 1/3(Property Factor)

    • What is the correct definition of the payroll factor in the context of apportionment?

    <p>The corporation's compensation in a particular state divided by the total compensation everywhere.</p> Signup and view all the answers

    When is a taxpayer entitled to apportion their income?

    <p>If they are entitled to do so as stipulated by law.</p> Signup and view all the answers

    Which method requires that all sales of combined group members be treated as a single entity for apportionment?

    <p>Finnigan rule</p> Signup and view all the answers

    Under the Joyce rule, how are sales from entities with no stand-alone nexus treated?

    <p>Excluded from the sales factor numerator</p> Signup and view all the answers

    Which state's application of the unitary business concept requires a two-year holding period?

    <p>Colorado</p> Signup and view all the answers

    In the context of combined reporting, what principle does not have a 'bright-line' definition?

    <p>Unitary business principle</p> Signup and view all the answers

    What is the basis of the historic development of the unitary business principle?

    <p>Property taxation cases</p> Signup and view all the answers

    Which test is primarily subjective and has had its definitions developed through case law?

    <p>Unitary business test</p> Signup and view all the answers

    What distinguishes the Joyce and Finnigan rules regarding combined reporting?

    <p>How separate entities within combined groups are treated</p> Signup and view all the answers

    Which of the following is a requirement in New York's application of the unitary business concept?

    <p>Distortion of business income</p> Signup and view all the answers

    In California, how is the location of benefit from a service determined when the customer is an individual?

    <p>By the customer's billing address being in California</p> Signup and view all the answers

    What does 'throwback rules' entail regarding sales of tangible property?

    <p>Sales that are non-taxable in the destination state revert to the origin state</p> Signup and view all the answers

    How is the location of benefit determined for business customers in California?

    <p>From the taxpayer's business records or contract terms</p> Signup and view all the answers

    Which of the following accurately describes the throw-out rules?

    <p>Sales are excluded from income calculations if no nexus is established</p> Signup and view all the answers

    What does 'look-through rules' imply for services delivered electronically?

    <p>Service revenue might originate from the customers of the customer</p> Signup and view all the answers

    Which situation indicates that the presumption of benefit location for a service is overcome?

    <p>Revenue documents reflect a different state</p> Signup and view all the answers

    Why could throwback rules potentially cause businesses to be taxed at multiples of their earned income in a state?

    <p>Since non-taxable sales add to the sales factor in their origin state</p> Signup and view all the answers

    What does the term 'benefit of a service is received' generally mean?

    <p>The location where customer value from the service is determined</p> Signup and view all the answers

    What is defined as 'Business Income' according to UDITPA § 1(a)?

    <p>Income arising from transactions in the regular course of the taxpayer's trade.</p> Signup and view all the answers

    Which of the following is categorized as 'Nonbusiness Income'?

    <p>Income derived from personal real estate investments.</p> Signup and view all the answers

    According to MTC Regulation § IV.I (a), how is business income defined?

    <p>All income arising from the conduct of trade or business operations.</p> Signup and view all the answers

    What type of income provides an exception to the classification as 'Business Income'?

    <p>Income that is not clearly classifiable as business income.</p> Signup and view all the answers

    Which of the following elements must be present for income to be classified as 'Business Income'?

    <p>Acquisition, management, and disposition of property within regular business.</p> Signup and view all the answers

    What is a potential source of controversy regarding business income at the state level?

    <p>Whether extraordinary transactions produce business income.</p> Signup and view all the answers

    Which of the following is NOT considered business income under UDITPA?

    <p>Gain from pension reversion income.</p> Signup and view all the answers

    What must a transaction achieve to satisfy the economic substance doctrine?

    <p>It must have an economic effect aside from tax benefits.</p> Signup and view all the answers

    Which of the following best characterizes the nature of Nonbusiness Income?

    <p>Any income derived from activities outside the scope of trade.</p> Signup and view all the answers

    Which of the following best characterizes the totality of circumstances test?

    <p>It considers both objective and subjective factors.</p> Signup and view all the answers

    What is the main inquiry of the substance over form doctrine?

    <p>If the form chosen by the taxpayer aligns with the transaction's substance.</p> Signup and view all the answers

    Which of the following doctrines primarily involves evaluating the taxpayer's motives?

    <p>Business purpose doctrine.</p> Signup and view all the answers

    When might the substance over form doctrine typically be raised?

    <p>In instances of leasing transactions or related party transactions.</p> Signup and view all the answers

    What is a common application of the business purpose doctrine?

    <p>To bifurcate transactions with mixed objectives.</p> Signup and view all the answers

    In which case did the substance over form doctrine originate?

    <p>Gregory v. Hilvering.</p> Signup and view all the answers

    Which of the following concepts overlaps with the economic substance doctrine?

    <p>Step transaction doctrine.</p> Signup and view all the answers

    What methodology do states rely on to divide the taxable income of a unitary business?

    <p>Formulary apportionment</p> Signup and view all the answers

    What did the United States Supreme Court rule regarding unfair apportionment?

    <p>Taxpayers have a constitutional right to alternative apportionment.</p> Signup and view all the answers

    What is the purpose of the internal consistency test in the fair apportionment prong?

    <p>To assess if the tax on interstate commerce exceeds in-state commerce.</p> Signup and view all the answers

    What may a taxpayer petition for if the statutory method does not fairly reflect their business activity in the state?

    <p>An alternative apportionment method.</p> Signup and view all the answers

    Which case established the necessity for fair apportionment of profits earned in a state?

    <p>Underwood Typewriter v. Chamberlain</p> Signup and view all the answers

    What does the external consistency test evaluate in fair apportionment?

    <p>Whether taxed value is fairly attributed to the taxing state's activities.</p> Signup and view all the answers

    What constitutional principle limits a state's ability to choose an apportionment method?

    <p>It must not produce unreasonable results.</p> Signup and view all the answers

    What aspect differentiates statutory fair apportionment from constitutional fair apportionment?

    <p>The burden of proof required.</p> Signup and view all the answers

    Study Notes

    Table of Contents

    • State and Local Tax Sources (page 2)
    • Basic Elements in the Analysis of Taxes (page 2)
    • Jurisdiction to Tax – Analytical Framework (page 2)
    • U.S. Statutes (page 5)
    • State Constitution (page 5)
    • Nexus (page 5)
    • Computation of State Tax Liability (page 5)
    • Fair Apportionment (Third Prong) (page 5)
    • Weighing of Factors (page 6)
    • Apportionment (page 6)
    • Business vs. Nonbusiness Income (page 7)
    • Special Problems with the Sales Factor (page 9)
    • Sales of TPP (page 11)
    • Cost of Performance Sourcing: Focus on the Service in Terms of Sourcing (page 12)
    • Market-Based Sourcing (page 13)
    • Unitary Business Principle (page 15)
    • Overview of the Unitary Business Principle (page 15)
    • Historical Development (page 16)
    • U.S. Supreme Court Tests for Unity (page 16)
    • Modern US Supreme Court Decisions (page 16)
    • Special Issues in Unitary Taxation (page 18)
    • Versions of Unitary Combined Reporting Tax (page 18)
    • Forced Combination (page 21)
    • Corporate Income Tax Base; Filing Methods (page 19)
    • State Corporate Income Tax Base (page 19)
    • Common Nonconformity Issues (page 19)
    • Return Filing Methods (page 20)
    • Payments to Related Entities (page 21)
    • Constitutional Distortion and Equitable Apportionment (page 23)
    • What is “fair apportionment”? (page 23)
    • Corporate Income Tax Planning State Challenges (page 25)
    • Economic Substance Doctrine (page 25)
    • Substance Over Form Doctrine (page 26)
    • Business Purpose Doctrine (page 26)
    • Sham Transaction (page 26)
    • Step Transaction (page 27)
    • Areas of Uncertainty (page 31)
    • Federal Codification (2010) (page 31)
    • State Codification (page 31)
    • Sales and Use Taxes (page 32)
    • Who is liable for sales and use tax? (page 32)
    • Taxable Incident: What is a sale? (page 33)
    • Taxable incident: What is a use? (page 33)
    • Jurisdictional Requirement (sourcing): Where is it taxable? (page 33)
    • What is taxable? (page 33)
    • What items are generally subject to Sales and Use Tax? (page 34)
    • Bundling and Mixed Transactions (page 35)
    • Streamlined Sales and Use Tax Agreement (page 37)
    • Registration and Reporting Requirements (page 37)
    • Sale Tax Audits & Litigation (page 37)
    • Evaluating a Company's Position and Potential Exposure (page 38)
    • Gross Receipts Taxes (page 38)
    • Key Issues (page 39)
    • Payments to Related Entities (page 40)
    • Computation of State Tax Liability (page 40)
    • Invoking Alternative Apportionment (page 37)

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