Chapter 23 Test Bank

1. Award: 1.
00 point
The primary purpose of state and local taxes is to raise revenue to finance state and local government.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 23-01 Describe the primary types of state
and local taxes.
2. Award: 1.00 point
All states employ some combination of sales and use tax, income or franchise tax, or property tax to fund their government operations.
 True
 False
References
and local taxes.
State tax law is comprised solely of legislative authority.
 True
 False
Like federal tax law, state tax law includes legislative, administrative, and judicial law.
References
and local taxes.
Commercial domicile is the location where a business is headquartered and from whence it directs its operations.
 True
 False
References
and local taxes.
Nondomiciliary businesses are subject to tax everywhere they do business.
 True
 False
Nondomiciliary businesses are only subject to tax where they have sales tax nexus or income tax nexus.
References
True / False Difficulty: 2 Medium Learning Objective: 23-01 Describe the primary types of state
and local taxes.
Use tax liability accrues in the state where taxable purchased property will be used when the seller of the property is not required to collect
sales tax.
 True
 False
References
and local taxes.
Businesses engaged in interstate commerce are subject to income tax in every state in which they operate.
 True
 False
Businesses engaged in interstate commerce are only subject to tax where they have nexus.
References
and local taxes.
The state tax base is computed by making adjustments to federal taxable income.
 True
 False
References
and local taxes.
Businesses subject to income tax in more than one jurisdiction have the right to apportionment.
 True
 False
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and local taxes.
Business income is allocated to the state of commercial domicile.
 True
 False
Business income is apportioned based on the extent of a business's activity and property in various states. Nonbusiness income is allocated
directly to the business's state of commercial domicile.
References
and local taxes.
All 50 states impose a sales and use tax system.
 True
 False
Alaska, Delaware, Montana, New Hampshire, and Oregon do not.
References
True / False Difficulty: 1 Easy Learning Objective: 23-02 Determine whether a business
has sales tax nexus and calculate its sales tax withholding
responsibilities.
Purchases of inventory for resale are typically exempt from sales and use taxes.
 True
 False
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responsibilities.
The sales and use tax base varies from state to state.
 True
 False
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responsibilities.
Many states are either starting to or are in the process of expanding the types of services subject to sales tax.
 True
 False
References
responsibilities.
Businesses must collect sales tax only in states where they have sales tax nexus.
 True
 False
References
True / False Difficulty: 2 Medium Learning Objective: 23-02 Determine whether a business
responsibilities.
Failure by a seller to collect and remit sales taxes often results in a larger tax liability than failure to pay income taxes.
 True
 False
References
responsibilities.
Economic presence always creates sales tax nexus.
 True
 False
Under the general Wayfair doctrine, exceeding $100,000 in sales or 200 sales transactions creates sales tax nexus.
References
responsibilities.
The Wayfair decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical
presence.
 True
 False
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responsibilities.
The Wayfair decision reversed the Quill decision, which had affirmed that out-of-state businesses must have physical presence within a state
before the state may require the collection of sales taxes from in-state customers.
 True
 False
References
responsibilities.
Wyoming imposes an income tax on corporations.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 23-03 Identify whether a business has
income tax nexus and determine its state income tax
liabilities.
Businesses must pay income tax in their state of commercial domicile.
 True
 False
References
liabilities.
In Complete Auto Transit the U.S. Supreme Court determined eight criteria for determining whether a state can tax a nondomiciliary company.
 True
 False
The Supreme Court determined four criteria for determining whether a state can tax a nondomiciliary company: (1) sufficient connection or
nexus exists, (2) may tax only a fair portion of the income, (3) cannot discriminate against nondomiciliary businesses, and (4) the tax must be
fairly related to the services provided.
References
liabilities.
Public Law 86-272 protects certain business activities from creating income tax nexus.
 True
 False
References
True / False Difficulty: 2 Medium Learning Objective: 23-03 Identify whether a business has
liabilities.
Public Law 86-272 was a congressional response to Northwestern States Portland Cement.
 True
 False
References
liabilities.
Public Law 86-272 protects only companies selling tangible personal property.
 True
 False
References
liabilities.
Delivery of tangible personal property through common carrier is a protected activity.
 True
 False
References
liabilities.
The Wrigley case held that the sale of intangibles is protected by Public Law 86-272.
 True
 False
Wrigley defined solicitation for purposes of Public Law 86-272.
References
liabilities.
Giving samples and promotional materials without charge is a protected solicitation activity.
 True
 False
References
liabilities.
The trade show rule allows businesses to maintain a sample room for up to four weeks per year.
 True
 False
The time limit is typically two weeks or less.
References
liabilities.
Sales personnel investigating a potential customer's creditworthiness generally are deemed to exceed protected boundaries of solicitation.
 True
 False
References
liabilities.
Immaterial violations of the solicitation rules automatically create income tax nexus.
 True
 False
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liabilities.
Several states are now moving from a strict physical presence test toward an economic presence test for income taxes.
 True
 False
References
liabilities.
Separate-return states require each member of a consolidated group with income tax nexus to file their own state income tax return.
 True
 False
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liabilities.
A unitary-return group includes only companies included in the federal consolidated tax return filing.
 True
 False
A unitary-return group includes only companies determined to be unitary, whereas a federal consolidated return group includes all businesses
that meet the 80 percent ownership threshold and have elected to file a consolidated return.
References
liabilities.
The Mobil decision identified three factors to determine whether a group of companies are unitary.
 True
 False
References
liabilities.
Federal/state adjustments correct for differences between two states' tax laws.
 True
 False
Federal/state adjustments reconcile between federal taxable income and state taxable income.
References
liabilities.
Most state tax laws adopt the federal tax law as of a specific date in time.
 True
 False
Most states adopt rolling conformity, which changes as federal law changes, but some states do adopt the federal tax law as of a specific date
in time.
References
liabilities.
Business income includes all income earned in the ordinary course of business.
 True
 False
References
liabilities.
A state's apportionment formula divides nonbusiness income among the states where income tax nexus exists.
 True
 False
Business income is apportioned among the states, whereas nonbusiness income is allocated to a specific state (usually the state of commercial
domicile).
References
liabilities.
A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.
 True
 False
References
liabilities.
The throwback rule requires a company, for apportionment purposes, to include all sales of inventory sold into a state without income tax nexus
rather than from the state from where the inventory was shipped.
 True
 False
The throwback rule requires sales to be "thrown back" to the state where the inventory was shipped from when income tax nexus doesn't exist
in the state the inventory was shipped to.
References
liabilities.
Most services are sourced to the state where the services were performed.
 True
 False
References
liabilities.
The payroll factor includes payments to independent contractors.
 True
 False
References
liabilities.
The property factor is generally calculated as being the average of the beginning and ending property values.
 True
 False
References
liabilities.
The annual value of rented property is not included in the property factor.
 True
 False
The annual value of rental property is multiplied by eight and then added to the property factor.
References
liabilities.
Most states have shifted away from an equally weighted three-factor to a heavily weighted sales apportionment formula.
 True
 False
References
liabilities.
In recent years, states are weighting the sales factor because it is easier to calculate.
 True
 False
Weighting the sales factor tends to decrease taxes on businesses with a physical in-state presence and increase taxes on businesses without
an in-state physical presence.
References
liabilities.
Interest and dividends are allocated to the state of commercial domicile.
 True
 False
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liabilities.
Rental income is allocated to the state of commercial domicile.
 True
 False
Allocate rental income to the state where the rental property is located.
References
liabilities.
A gross receipts tax is subject to Public Law 86-272.
 True
 False
Public Law 86-272 does not apply to nexus for nonincome-based taxes.
References
liabilities.
Which of the following is true regarding state and local taxes?
 All states impose a state income tax.
 Every jurisdiction imposes a sales or use tax.
 The primary purpose of state and local taxes is to raise revenue.
 Property taxes are primarily used to finance a state's general revenue fund.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 23-01 Describe the primary types of state
and local taxes.
Which of the following is not a primary revenue source for most states?
 Income or franchise taxes
 Sales or use taxes
 Severance taxes
 Property taxes
Severance taxes are only primary revenue sources in natural resource–rich states such as Alaska and Wyoming.
References
and local taxes.
Which of the following law types is not a primary authority source?
 Legislative
 Administrative
 Judicial
 Treatises
Treatises provide a useful interpretation of the law, but are not a source of law.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 23-01 Describe the primary types of state
and local taxes.
Which of the following statements regarding income tax commercial domicile is incorrect?
 The location where a business is headquartered.
 The location where a business is incorporated.
 The location from which a business directs its operations.
 None of the choices are correct.
The place of incorporation isn't a necessary condition for commercial domicile.
References
and local taxes.
Which of the following is incorrect regarding nondomiciliary businesses?
 Subject to tax only where income tax nexus exists.
 A business cannot be nondomiciliary where it is headquartered.
 A business can be nondomiciliary in only one jurisdiction.
 Subject to tax only where a sufficient connection exists.
A business can be domiciled in only one jurisdiction, but nondomiciliary in several jurisdictions.
References
and local taxes.
Which of the items is correct regarding a use tax?
 Use taxes are imposed by every state.
 Use taxes only apply when the seller is not required to collect the sales tax.
 Amazon collects use taxes on behalf of all its resellers.
 States choose to implement either a sales tax or a use tax but not both.
Sales and use taxes are complementary; use taxes only accrue when the seller does not have the sales tax nexus.
References
and local taxes.
All of the following are false regarding apportionment except?
 Applies to only business income.
 Applies to only nonbusiness income.
 Applies to both business and nonbusiness income.
 Investment income is subject to apportionment.
Nonbusiness income, including investment income, is allocated rather than apportioned.
References
and local taxes.
Which of the following regarding the state tax base is incorrect?
 It is computed by making adjustments to federal taxable income.
 It is divided into business and nonbusiness income.
 It is a necessary step in the state income tax process.
 It applies only to interstate businesses.
The state tax base must be computed by both interstate and intrastate businesses.
References
and local taxes.
Which of the following sales is likely subject to sales and use tax in a state that assesses a sales and use tax?
 Tax preparation services
 Automobiles
 Inventory
 Food
Automobiles are tangible personal property included in the sales tax base of every state that chooses to tax sales.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 23-02 Determine whether a business
responsibilities.
Which of the following businesses is likely to have taxable sales for purposes of sales and use tax?
 Campus bookstore selling textbooks and university apparel.
 An online retailer of textbooks with less than $100,000 in sales on 150 transactions.
 A local accounting firm.
 Mail-order clothing company.
Campus bookstores have both physical presence and merchandise (apparel) subject to sales and use tax.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 23-02 Determine whether a business
responsibilities.
Which of the following activities will create sales tax nexus?
 Advertising using television commercials.
 Salespeople physically located in a state from which they only take orders.
 Delivery of sales by UPS.
 $90,000 of sales on 190 online sales transactions.
Salespeople create the physical presence and sales tax nexus.
References
responsibilities.
Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is
incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Michigan, Minnesota, and Wisconsin. It has
sales personnel only in the states discussed and all these states have adopted Wayfair legislation. Determine the state in which Mighty Manny
does not have sales and nexus given the following scenarios:
 Mighty Manny is incorporated and headquartered in Michigan. It also has property, employees, sales personnel, and intangibles in
Michigan.
 Mighty Manny has a warehouse in Illinois.
 Mighty Manny has independent sales representatives in Minnesota that make $150,000 of sales on 100 transactions. The
representatives distribute ice scraper–related items for over a dozen companies.
 Mighty Manny has two customers in Wisconsin. Mighty Manny receives $50,000 on 20 orders over the phone and ships goods to its
customers using FedEx.
Having $50,000 of sales on 20 transactions doesn't create sales tax nexus.
References
responsibilities.
Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is
incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Michigan, Minnesota, Wisconsin, and
Wyoming. It has sales personnel only in the states discussed and all these states have adopted Wayfair legislation. Determine the state in which
Mighty Manny does not have sales tax nexus given the following scenarios:
 Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-
272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
 Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's customers in other states, but the company has
no Nebraska sales.
 Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in
Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
 Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on
Mighty Manny's trucks.
Driving through Nebraska does not ordinarily create sales tax nexus in Nebraska.
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responsibilities.
Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?
 Protected activities are exempt.
 A sufficient connection exists.
 Only a fair portion of income can be taxed.
 Tax cannot discriminate against nondomiciliary businesses.
Protected activities are outlined by Public Law 86-272.
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responsibilities.
On which of the following transactions should sales tax generally be collected?
 Architecture plans delivered out of state through the mail.
 Sales of woolen goods to a state without economic sales tax nexus delivered through common carrier.
 Accounting services provided in Alaska.
 Meal purchased at McDonald's.
Restaurant meals are generally subject to sales tax. Most states don’t tax either accounting or architectural services.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,000,000 and
out-of-state sales are $200,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax collection
obligation?
 $0
 $10,000
 $50,000
 $60,000
$1,000,000 × 5 percent.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,750,000 and
out-of-state sales are $215,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax collection
obligation?
 $0
 $10,750
 $87,500
 $98,250
$1,750,000 × 5 percent.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress that is
shipped to her Maryland residence using a common carrier. Roxy's total Maryland sales are $20,000 on 15 transactions. Assuming that Virginia's
sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax collection obligation?
 $0
 $75 to Virginia
 $75 sales tax to Virginia and $15 use tax to Maryland
 $90 to Maryland
Since the dress is shipped to Maryland, Roxy owes no tax. Lisa will owe Maryland use tax.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $2,900 dress that is
shipped to her Maryland residence using a common carrier. Roxy’s total Maryland sales are $37,700 on 15 transactions. Assuming that Virginia's
sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax collection obligation?
 $0
 $145 to Virginia
 $203 to Maryland
Since the dress is shipped to Maryland, Roxy owes no tax. Lisa will owe Maryland use tax.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress. Lisa
returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence, where she will use the dress. Assuming
that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales tax collection obligation?
 $0
 $75 to Virginia
 $90 to Maryland
Roxy would owe $75 to Virginia ($1,500 × 5 percent of sales tax). Roxy does not have physical presence or sales tax nexus in Maryland.
However, Lisa would owe use tax of $15 ($90 ($1,500 × 6 percent) − $75) in Maryland.
References
responsibilities.
Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $2,200 dress. Lisa
returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence, where she will use the dress. Assuming
that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 6 percent, what is Roxy's sales tax collection obligation?
 $0
 $110 to Virginia
 $132 to Maryland
Roxy would owe $110 to Virginia ($2,200 × 5 percent of sales tax). Roxy does not have physical presence or sales tax nexus in Maryland.
However, Lisa would owe use tax of $22 ($132 ($2,200 × 6 percent) − $110) in Maryland.
References
responsibilities.
What was the Supreme Court's holding in National Bellas Hess?
 An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
 Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to
collect sales tax from in-state customers.
 Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.
 Defined solicitation for purposes of Public Law 86-272.
References
responsibilities.
What was the Supreme Court's holding in Wayfair?
 An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
 Reversed the Quill decision that an out-of-state business must have physical presence in the state before the state may require the
business to collect sales tax from in-state customers.
 Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.
References
responsibilities.
Mahre, Incorporated, a New York corporation, runs ski tours in several states. Mahre also has a New York retail store and an Internet store,
which ships to out-of-state customers. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns
and uses tangible personal property. Mahre has real property only in New York. Mahre has the following sales:
Mahre Sales
State Goods Services Total
Alaska $ 23,194 $0 $ 23,194
Colorado 10,612 0 10,612
Maine 35,913 156,084 191,997
New Hampshire 26,721 325,327 352,048
New York 65,431 0 65,431
Vermont 41,982 277,441 319,423
Totals $ 203,853 $ 758,852 $ 962,705
Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (6.75 percent), New York
(8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit in Maine?
 $0
 $3,053
 $13,267
 $16,319
$35,913 × 8.5 percent. The sales tax is generally collected on goods sold rather than on services. While Maine does impose a Service Provider
Tax on certain enumerated services, ski tour services are not taxable.
References
responsibilities.
Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store,
which ships to out-of-state customers. Assume sales transactions in all states, except New York, are under 200 and that all states have adopted
Wayfair legislation. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible
personal property. Mahre has real property only in New York. Mahre has the following sales:
Mahre Sales
Alaska $ 23,194 $0 $ 23,194
Colorado 10,612 0 10,612
Maine 35,913 156,084 191,997
New Hampshire 26,721 325,327 352,048
New York 65,431 0 65,431
Vermont 41,982 277,441 319,423
Totals $ 203,853 $ 758,852 $ 962,705
Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (0 percent), New York (8
percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?
 $10,386
 $14,543
 $26,733
 $61,289
Mahre needs to collect and remit $10,386 in sales taxes [Maine ($35,913 × 8.5 percent) + New Hampshire ($26,721 × 0 percent) + New York
($65,431 × 8 percent) + Vermont ($41,982 × 5 percent)] because it has physical presence in these states. The sales tax base is only assessed on
goods sold, not on services. While Maine does impose a Service provider Tax on certain enumerated services, ski tour services are not taxable.
Assuming general Wayfair rules are established, because Mahre has no physical presence and less than 200 sales transactions in Alaska and
Colorado, the Wayfair decision protects Mahre from economic sales tax nexus and collecting and remitting sales tax in those states.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 23-02 Determine whether a business
responsibilities.
Mahre, Incorporated, a New York corporation, runs ski tours in a several states. Mahre also has a New York retail store and an Internet store,
which ships to out-of-state customers. Assume sales transactions in all states, except New York, are under 200 and that all states have adopted
Wayfair legislation. The ski tours operate in Maine, New Hampshire, and Vermont, where Mahre has employees and owns and uses tangible
personal property. Mahre has real property only in New York. Mahre has the following sales:
Mahre Sales
Alaska $ 23,230 $0 $ 23,230
Colorado 10,648 0 10,648
Maine 36,039 156,210 192,249
New Hampshire 26,865 325,741 352,606
New York 65,593 0 65,593
Vermont 42,126 277,783 319,909
Totals $ 204,501 $ 759,734 $ 964,235
Assume the following sales tax rates: Alaska (0 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (0 percent), New York (8
percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?
 $10,417
 $14,492
 $26,769
 $61,325
Mahre needs to collect and remit $10,417 in sales taxes [Maine ($36,039 × 8.5 percent) + New Hampshire ($26,865 × 0 percent) + New York
($65,593 × 8 percent) + Vermont ($42,126 × 5 percent)] because it has physical presence in these states. The sales tax base is only assessed on
goods sold, not on services. While Maine does impose a Service provider Tax on certain enumerated services, ski tour services are not taxable.
Assuming general Wayfair rules are established, because Mahre has no physical presence and less than 200 sales transactions in Alaska and
Colorado, the Wayfair decision protects Mahre from economic sales tax nexus and collecting and remitting sales tax in those states.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 23-02 Determine whether a business
responsibilities.
Which of the following isn't a requirement of Public Law 86-272?
 The tax is based on net income.
 The taxpayer sells only tangible personal property.
 The taxpayer is an intrastate business.
 The taxpayer is nondomiciliary.
The taxpayer must be an interstate business.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 23-03 Identify whether a business has
liabilities.
Bethesda Corporation is unprotected from income tax by Public Law 86-272. Which of the following characteristics likely creates a problem for
Bethesda in states other than Maryland?
 Bethesda does business in Maryland and five other states.
 Bethesda sells copier equipment and copy center services.
 All orders are approved in Maryland.
 All in-state services are limited to solicitation in states other than Maryland.
The sale of services is not a protected activity.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 23-03 Identify whether a business has
liabilities.
Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?
 Any form of advertising.
 Distribution of samples without charge.
 Accepting a down payment.
 Checking a customer's inventory.
The acceptance of a down payment or deposit is not solicitation.
References
liabilities.
Public Law 86-272 protects a taxpayer from which of the following taxes?
 Texas Margin Tax (a tax with net income, gross receipts, and capital worth components).
 Washington Business & Occupation Tax (a gross receipts tax).
 Ohio Commercial Activity Tax (an excise tax with a gross receipts base).
 California Franchise Tax (a net income tax).
California Franchise Tax is based on net income and therefore Public Law 86-272 protects certain taxpayers from paying it.
References
liabilities.
In which of the following state cases did the state not assert economic income tax nexus?
 South Dakota with the Wayfair rule.
 South Carolina in the Geoffrey case.
 West Virginia in the MBNA case.
 Wisconsin in Wrigley.
Wrigley does not deal with economic nexus. Wrigley addressed the definition of solicitation.
References
Multiple Choice Learning Objective: 23-02

Determine whether a business
has sales tax nexus and
calculate its sales tax
withholding responsibilities.
Difficulty: 2 Medium Learning Objective: 23-03

Identify whether a business
has income tax nexus and
determine its state income tax
liabilities.
Which of the following isn't a criterion used to determine whether a unitary relationship exists?
 Functional integration
 Centralized management
 Economies of scale
 Consolidated return status
Consolidated return isn't a criterion used to determine whether a unitary relationship exists.
References
liabilities.
Which of the following isn't a typical federal/state adjustment?
 Dividends received deduction
 Depreciation
 Meals
 U.S. obligation interest income
Meals are a typical book/federal tax adjustment rather than a federal/state adjustment.
References
liabilities.
PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:
Item Amount Federal Treatment

Illinois income taxes $ 33,333 Deducted on federal return
Indiana income taxes $ 18,500 Deducted on federal return
Ohio Commercial Activity Tax $ 4,000 Deducted on federal return
Illinois municipal bond interest $ 10,000 Excluded from federal return
Indiana municipal bond interest $ 15,000 Excluded from federal return
Federal T-note interest $ 2,500 Included on federal return
PWD's federal taxable income was $100,000. If Illinois only requires Illinois taxes to be added back, calculate PWD's Illinois state tax base.
 $116,000
 $130,833
 $131,000
 $145,833
$100,000 + $33,333 (Illinois income taxes paid) + $15,000 (Indiana municipal bond interest) − $2,500 (federal T-Note interest).
References
liabilities.
PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:

PWD's federal taxable income was $113,000. If Illinois only requires Illinois taxes to be added back, calculate PWD's Illinois state tax base.
 $128,961
 $143,411
 $144,286
 $159,275
$113,000 + $33,424 (Illinois income taxes paid) + $15,325 (Indiana municipal bond interest) − $2,474 (federal T-Note interest).
References
liabilities.
Hoosier Incorporated is an Indiana corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:

Depreciation $ 40,000 Deducted on federal return
State depreciation expense was $50,000. Hoosier's federal taxable income was $150,300. Calculate Hoosier's Indiana state tax base.
 $171,300
 $173,800
 $199,633
 $207,133
$150,300 + $33,333 (Illinois income taxes paid) + $18,500 (Indiana income taxes paid) − $10,000 (depreciation adjustment) + $10,000 (Illinois
interest) − $2,500 (federal T-Note interest). Most states exempt their bond interest and tax other state’s bond interest.
References
liabilities.
Hoosier Incorporated is an Indiana corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:

State depreciation expense was $52,000. Hoosier's federal taxable income was $152,300. Calculate Hoosier's Indiana state tax base.
 $173,160
 $175,620
 $201,633
 $209,133
$152,300 + $33,473 (Illinois income taxes paid) + $18,400 (Indiana income taxes paid) − $10,000 (depreciation adjustment) + $9,920 (Illinois
interest) − $2,460 (federal T-Note interest). Most states exempt their bond interest and tax other state’s bond interest.
References
liabilities.
Which of the following is not a general rule for calculating the sales factor?
 Tangible personal property sales are sourced to the destination state.
 If the business does not have income tax nexus in the destination state, the sales are thrown back to the state where the goods
were shipped from.
 Services are sourced to the destination state.
 Government sales are sourced to the state where they were shipped from.
Services are generally sourced where performed, with the exception of California and Illinois.
References
liabilities.
Wacky Wendy produces gourmet cheese in Wisconsin. Wendy has sales as follows:
Wacky Wendy's Sales:

State Sales
Iowa $ 350,512
Michigan $ 134,589
Minnesota $ 849,142
Wisconsin $ 1,323,032
Totals $ 2,657,275
Wendy is a Wisconsin corporation and has the following operations:

Wendy has income tax nexus in Iowa, Minnesota, and Wisconsin. The Michigan sales are shipped from Wisconsin (a throwback state). $100,000
of the Wisconsin sales were to the federal government. What is Wendy's Wisconsin sale numerator?
 $1,223,032
 $1,323,032
 $1,357,621
 $1,457,621
$1,457,621 = $1,323,032 + $134,589. The Michigan sales are "thrown back" to Wisconsin since Wendy doesn't have income tax nexus in
Michigan. Additionally, the government sales are sourced in (not "thrown back" to) the state from which they were shipped.
References
liabilities.
Wacky Wendy produces gourmet cheese in Wisconsin. Wendy has sales as follows:
Wacky Wendy's Sales:

State Sales
Iowa $ 350,542
Michigan $ 134,679
Minnesota $ 849,222
Wisconsin $ 1,323,212
Totals $ 2,657,655
Wendy is a Wisconsin corporation and has the following operations:

Wendy has income tax nexus in Iowa, Minnesota, and Wisconsin. The Michigan sales are shipped from Wisconsin (a throwback state). $101,000
of the Wisconsin sales were to the federal government. What is Wendy's Wisconsin sale numerator?
 $1,222,212.
 $1,323,212.
 $1,356,891.
 $1,457,891.
$1,457,891 = $1,323,212 + $134,679. The Michigan sales are "thrown back" to Wisconsin since Wendy doesn't have income tax nexus in
Michigan. Additionally, the government sales are sourced in (not "thrown back" to) the state from which they were shipped.
References
liabilities.
Which of the following is not a general rule for calculating the payroll factor?
 Includes salaries, commissions, and bonuses
 Excludes compensation to independent contractors
 Allocates compensation for employees working in more than one state
 Assigns the payroll of each employee to a single state
Payroll for employees who work in more than one state is sourced to the state where they perform the majority of services.
References
liabilities.
Handsome Rob provides transportation services in several western states. Rob has payroll as follows:
Handsome Rob’s Payroll:

State Payroll
Arizona $ 350,512
California $ 1,134,589
Nevada $ 849,142
Washington $ 323,032
Totals $ 2,657,275
Rob is a California corporation and the following is true:

Rob has income tax nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving
through Oregon. California payroll includes $200,000 of payroll for services provided in Nevada by California-based drivers. What is Rob's
California payroll numerator?
 $934,589
 $1,134,589
 $1,215,347
 $2,657,275
No allocation is made among states for payroll.
References
liabilities.
Handsome Rob provides transportation services in several western states. Rob has payroll as follows:
Handsome Rob's Payroll:

State Payroll
Arizona $ 350,539
California $ 1,134,670
Nevada $ 849,214
Washington $ 323,194
Totals $ 2,657,617
Rob is a California corporation and the following is true:

Rob has income tax nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving
through Oregon. California payroll includes $200,900 of payroll for services provided in Nevada by California-based drivers. What is Rob's
California payroll numerator?
 $933,770.
 $1,134,670.
 $1,215,374.
 $2,657,617.
No allocation is made among states for payroll.
References
liabilities.
Which of the following is not a general rule for calculating the property factor?
 Uses the average property values for the year.
 Values property at historical cost.
 Excludes property in transit from the calculation.
 Includes rented property at eight times the annual rent.
Property in transit is typically sourced to the destination state.
References
liabilities.
Lefty provides demolition services in several southern states. Lefty has property as follows:
Property
State Beginning Ending
Alabama $ 123,032 $ 204,235
Kentucky $ 203,311 $ 185,102
Mississippi $ 881,921 $ 1,002,384
Louisiana $ 243,945 $ 350,304
Tennessee $ 143,198 $ 143,198
Total $ 1,595,407 $ 1,885,223
Lefty is a Mississippi corporation. Lefty also rents property in Mississippi and Tennessee with annual rents of $50,000 and $15,000, respectively.
What is Lefty's Mississippi property numerator? (Round your answer to the nearest whole number.)
 $942,153
 $1,002,384
 $1,052,384
 $1,342,153
The beginning and ending values are averaged and the rental property is added at eight times the annual rent. ($881,921 + $1,002,384)/2 +
($50,000 × 8).
References
liabilities.
Lefty provides demolition services in several southern states. Lefty has property as follows:
Property
Alabama $ 123,066 $ 204,252
Kentucky $ 203,328 $ 185,119
Mississippi $ 881,954 $ 1,002,418
Louisiana $ 243,962 $ 350,321
Tennessee $ 143,215 $ 143,215
Total $ 1,595,525 $ 1,885,325
Lefty is a Mississippi corporation. Lefty also rents property in Mississippi and Tennessee with annual rents of $67,000 and $32,000, respectively.
What is Lefty's Mississippi property numerator? (Round your answer to the nearest whole number.)
 $942,186
 $1,002,418
 $1,069,418
 $1,478,186
The beginning and ending values are averaged and the rental property is added at eight times the annual rent. ($881,954 + $1,002,418)/2 +
($67,000 × 8).
References
liabilities.
What was the Supreme Court's holding in Complete Auto Transit?
 An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
 Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to
collect sales tax from in-state customers.
 Provided four criteria for determining whether states may subject nondomiciliary companies to an income tax.
References
responsibilities.
Carolina's Hats has the following sales, payroll, and property factors:
North Carolina South Carolina

Sales 75.03% 22.51%
Payroll 68.62% 21.28%
Property 78.45% 14.56%
What is Carolina's Hats North and South Carolina apportionment factors if North Carolina uses an equally weighted three-factor formula and
South Carolina uses a double-weighted sales factor formula? (Round your answers to two decimal places.)
 North Carolina 74.03 percent, and South Carolina 19.45 percent.
 North Carolina 74.03 percent, and South Carolina 20.22 percent.
[(75.03 + 68.62 + 78.45)/3], [(22.51 + 22.51 + 21.28 + 14.56)/4].
References
liabilities.
Which of the following is not a general rule for allocating nonbusiness income?
 Interest and dividends to the state of commercial domicile.
 Rental income for investment property to state of commercial domicile.
 Rental income for business property to state where property is located.
 Capital gains from rental property to state where property is located.
Rents are generally allocated to the state where the property is located.
References
liabilities.
Della Corporation is headquartered in Carlisle, Pennsylvania. Della has a Pennsylvania state income tax base of $425,000. Of this amount,
$75,000 was nonbusiness income. Della's Pennsylvania apportionment factor is 28.52 percent. The nonbusiness income allocated to
Pennsylvania was $61,000. Assuming a Pennsylvania corporate tax rate of 7.75 percent, what is Della's Pennsylvania state tax liability? (Round
your answer to the nearest whole number.)
 $8,821
 $9,084
 $12,464
 $13,549
{[($425,000 − $75,000) × 28.52 percent] + $61,000} × 7.75 percent.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 23-03 Identify whether a business has
liabilities.
Della Corporation is headquartered in Carlisle, Pennsylvania. Della has a Pennsylvania state income tax base of $432,500. Of this amount,
$76,500 was nonbusiness income. Della's Pennsylvania apportionment factor is 28.52 percent. The nonbusiness income allocated to
Pennsylvania was $61,750. Assuming a Pennsylvania corporate tax rate of 7.75 percent, what is Della's Pennsylvania state tax liability? (Round
your answer to the nearest whole number.)
 $8,971
 $9,234
 $12,654
 $13,739
{[($432,500 − $76,500) × 28.52 percent] + $61,750} × 7.75 percent.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 23-03 Identify whether a business has
liabilities.
Which of the following is an income-based tax?
 Ohio Commercial Activity Tax
 Nevada Commerce Tax
 Washington Business & Occupation Tax
 Wisconsin corporate tax
Wisconsin is a unitary state that has a corporate net income-based tax.
References
liabilities.
Discuss the steps necessary to determine whether a business has a sales tax collection obligation within a state and how the tax is collected.
Determine whether the seller has sales tax nexus through either physical or economic presence. If so, then sales tax will be collected and
remitted by the seller. If not, then the buyer must pay the use tax on his or her individual income tax return or the business's sales tax return.
References
Essay Difficulty: 2 Medium Learning Objective: 23-01 Describe the primary types of state
and local taxes.
List the steps necessary to determine an interstate business's state income tax liability.
Determine the state tax base, divide into business and nonbusiness income, apportion business income, allocate nonbusiness income, add
apportioned business and nonbusiness income for each state, and multiply by the state tax rate.
See Exhibit 23-3.
References
Essay Difficulty: 2 Medium Learning Objective: 23-03 Identify whether a business has
liabilities.
Super Sadie, Incorporated, manufactures sandals and distributes them across the southwestern United States. Super Sadie is incorporated and
headquartered in Arizona. It has product sales to customers in Arizona, California, Colorado, New Mexico, Oregon, Texas, and Utah. In each
state it has sales of less than $100,000 on under 200 transactions. It has sales personnel in California, Colorado, and New Mexico. It also owns
an office building in Arizona and a warehouse in Texas. Determine the states in which Super Sadie has sales tax nexus.
Arizona, California, Colorado, New Mexico, and Texas.
Sales tax nexus exists in Arizona because of domicile. Sales tax nexus exists in California, Colorado, and New Mexico because of sales
personnel. Sales tax nexus exists in Texas because of property. No sales tax nexus exists in Oregon and Utah because physical presence isn’t
met and economic nexus doesn't apply because sales thresholds aren't met. Additionally, Oregon does not impose a sales tax.
References
Essay Difficulty: 2 Medium Learning Objective: 23-02 Determine whether a business

responsibilities.
Super Sadie, Incorporated, manufactures sandals and distributes them across the southwestern United States. Assume that Super Sadie has
sales tax nexus in Arizona, California, Colorado, New Mexico, and Texas. Super Sadie has sales as follows:
Super Sadie Sales

State Goods
Arizona $ 583,194
California 1,003,923
Colorado 487,204
New Mexico 201,932
Pennsylvania 502,940
Texas 892,048
Utah 302,109
Totals $ 3,973,350
Assume the following sales tax rates: Arizona (6 percent), California (8 percent), Colorado (7 percent), New Mexico (6.5 percent), Pennsylvania
(7.25 percent), Texas (8 percent), and Utah (5 percent). What is Super Sadie's total sales and use tax liability? (Round your interim calculations to
the nearest whole number.)
$233,900.
($583,194 × 6 percent) + ($1,003,923 × 8 percent) + ($487,204 × 7 percent) + ($201,932 × 6.5 percent) + ($892,048 × 8 percent).
References

responsibilities.
Super Sadie, Incorporated, manufactures sandals and distributes them across the southwestern United States. Assume that Super Sadie has
sales tax nexus in Arizona, California, Colorado, New Mexico, and Texas. Super Sadie has sales as follows:
Super Sadie Sales

State Goods
Arizona $ 583,225
California 1,003,950
Colorado 487,220
New Mexico 210,950
Pennsylvania 502,960
Texas 892,070
Utah 302,125
Totals $ 3,982,500
Assume the following sales tax rates: Arizona (6 percent), California (8 percent), Colorado (7 percent), New Mexico (6.5 percent), Pennsylvania
(7.25 percent), Texas (8 percent), and Utah (5 percent). What is Super Sadie's total sales and use tax liability? (Round your interim calculations to
the nearest whole number.)
$234,493.
($583,225 × 6 percent) + ($1,003,950 × 8 percent) + ($487,220 × 7 percent) + ($210,950 × 6.5 percent) + ($892,070 × 8 percent).
References

responsibilities.
Mighty Manny, Incorporated manufactures and services deli machinery and distributes it across the United States. Mighty Manny is incorporated
and headquartered in New Jersey. It has product sales in all 50 states. New Jersey is the only state in which Mighty Manny exceeds the Wayfair
sales thresholds. Mighty Manny's service employees work in Connecticut, New Jersey, New York, Pennsylvania, and Rhode Island. Mighty
Manny also has an executive training seminar each year in South Carolina. Determine the states in which Mighty Manny has sales tax nexus.
Connecticut, New Jersey, New York, Pennsylvania, and Rhode Island.
Sales tax nexus in New Jersey because of domicile. Sales tax nexus in Connecticut, New York, Pennsylvania, and Rhode Island because of
sales personnel. South Carolina sales tax nexus would be triggered if Mighty Manny has an employee visit South Carolina four or more times
during the year.
References
Essay Difficulty: 1 Easy Learning Objective: 23-02 Determine whether a business

responsibilities.
and headquartered in New Jersey. It has sales tax nexus in Connecticut, New Jersey, New York, Pennsylvania, Rhode Island, and South
Carolina. Mighty Manny has sales as follows:
Mighty Manny’s Sales

Connecticut $ 359,294 $ 39,201 $ 398,495
New Jersey 1,304,292 382,984 1,687,276
New York 929,402 325,327 1,254,729
Pennsylvania 320,481 93,203 413,684
Rhode Island 85,419 0 85,419
South Carolina 52,427 0 52,427
Totals $ 3,051,315 $ 840,715 $ 3,892,030
Assume the following sales tax rates: Connecticut (6.75 percent), New Jersey (7.5 percent), New York (8.5 percent), Pennsylvania (6.5 percent),
Rhode Island (7.25 percent), and South Carolina (5.5 percent). Assume that only Connecticut taxes Mighty Manny's services. What is Mighty
Manny's total sales and use tax liability?
$233,626.
($398,495 × 6.75 percent) + ($1,304,292 × 7.5 percent) + ($929,402 × 8.5 percent) + ($320,481 × 6.5 percent) + ($85,419 × 7.25 percent) +
($52,427 × 5.5 percent).
References
Essay Difficulty: 3 Hard Learning Objective: 23-02 Determine whether a business

responsibilities.
and headquartered in New Jersey. It has sales tax nexus in Connecticut, New Jersey, New York, Pennsylvania, Rhode Island, and South
Carolina. Mighty Manny has sales as follows:
Mighty Manny's Sales

Connecticut $ 359,759 $ 39,936 $ 399,695
New Jersey 1,304,787 397,099 1,701,886
New York 930,122 296,047 1,226,169
Pennsylvania 321,216 94,058 415,274
Rhode Island 86,259 0 86,259
South Carolina 53,222 0 53,222
Totals $ 3,055,365 $ 827,140 $ 3,882,505
Assume the following sales tax rates: Connecticut (6.75 percent), New Jersey (7.5 percent), New York (8.5 percent), Pennsylvania (6.5 percent),
Rhode Island (7.25 percent), and South Carolina (5.5 percent). Assume that only Connecticut taxes Mighty Manny's services. What is Mighty
Manny's total sales and use tax liability? (Round your answer to the nearest whole number.)
$233,958.
($399,695 × 6.75 percent) + ($1,304,787 × 7.5 percent) + ($930,122 × 8.5 percent) + ($321,216 × 6.5 percent) + ($86,259 × 7.25 percent) +
($53,222 × 5.5 percent).
References
Essay Difficulty: 3 Hard Learning Objective: 23-02 Determine whether a business

responsibilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. The shop sells, manufactures, and customizes tennis racquets for serious
amateurs. Virginia has a 5 percent sales tax. Tennessee has a 4 percent sales tax. Determine the sales and use tax liability that the shop must
collect and remit if it sells a $500 racquet to a Tennessee resident that purchases the merchandise in the Virginia retail store?
$25.
$500 × 5%.
References

responsibilities.
amateurs. Virginia has a 5 percent sales tax. Tennessee has a 4 percent sales tax. Determine the sales and use tax liability that the shop must
collect and remit if it sells a $1,200 racquet to a Tennessee resident that purchases the merchandise in the Virginia retail store?
$60.
$1,200 × 5%.
References

responsibilities.
amateurs. Virginia has a 5 percent sales tax. Arizona has a 6 percent sales tax, but Arizona sales thresholds don't exceed the Wayfair limits.
Determine the sales tax liability that the shop must collect and remit if it sells a $1,000 racquet order to an Arizona customer (assume the shop
has no sales personnel or property in Arizona) that purchases the merchandise from the Virginia store over the internet?
$0.
The shop has no physical presence or sales personnel in Arizona, thus no sales tax nexus exists and no sales tax is required to be collected.
References

responsibilities.
amateurs. Virginia has a 5 percent sales tax. Assume that a District of Columbia customer picks up a $2,000 racquet order in the Blacksburg
store and drives it back to the District of Columbia (where the sales tax rate is 8.5 percent). Determine the sales and use tax liability of the
customer. (Assume the shop has no sales personnel or property in District of Columbia, and District of Columbia sales don't exceed the Wayfair
thresholds.)
$100 of Virginia sales tax and $70 District of Columbia use tax.
The shop has no physical presence or sales personnel in the District of Columbia, thus no District of Columbia sales tax is required to be
collected. Because the goods are picked up in Virginia, the shop would collect sales tax ($2,000 × 5 percent) and the customer would remit
$70 of District of Columbia use tax [$2,000 × (8.5 percent − 5 percent)].
References
liabilities.
amateurs. Virginia has a 5 percent sales tax. Assume that a District of Columbia customer picks up a $3,800 racquet order in the Blacksburg
store and drives it back to the District of Columbia (where the sales tax rate is 8.5 percent). Determine the sales and use tax liability of the
customer. (Assume the shop has no sales personnel or property in District of Columbia, and District of Columbia sales don't exceed the Wayfair
thresholds.)
$190 of Virginia sales tax and $133 District of Columbia use tax.
The shop has no physical presence or sales personnel in the District of Columbia, thus no District of Columbia sales tax is required to be
collected. Because the goods are picked up in Virginia, the shop would collect sales tax ($3,800 × 5 percent) and the customer would remit
$133 of District of Columbia use tax [$3,800 × (8.5 percent − 5 percent)].
References
liabilities.
Moss Incorporated is a Washington corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:

Oregon income taxes $ 25,750 Deducted on federal return
Washington B&O Tax $ 15,500 Deducted on federal return
Oregon municipal bond interest $ 10,000 Excluded from federal return
Washington municipal bond interest $ 15,000 Excluded from federal return
Moss's Oregon depreciation was $145,500. Moss's federal taxable income was $549,743. Assuming Oregon taxes all municipal bond interest,
calculate Moss's Oregon state tax base.
$581,743.
$549,743 + $25,750 + $10,000 + $15,000 − $7,500 + $134,250 − $145,500.
References
liabilities.
Moss Incorporated is a Washington corporation. It properly included, deducted, or excluded the following items on its federal tax return in the
current year:

Oregon income taxes $ 25,795 Deducted on federal return
Washington B&O Tax $ 15,995 Deducted on federal return
Oregon municipal bond interest $ 10,090 Excluded from federal return
Washington municipal bond interest $ 15,450 Excluded from federal return
Moss's Oregon depreciation was $145,545. Moss's federal taxable income was $549,833. Assuming Oregon taxes all municipal bond interest,
calculate Moss's Oregon state tax base.
$582,373.
$549,833 + $25,795 + $10,090 + $15,450 − $7,545 + $134,295 − $145,545.
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufactures, and customizes tennis racquets for serious
amateurs. Tennis Pro's business has expanded significantly over the last few years. Currently, it has sales personnel in 9 states (Virginia, North
Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, and New Jersey) and the District of Columbia. All sales activity in all of
these states is limited to solicitation. Orders are taken by the sales team and forwarded to Blacksburg for approval. All orders are sent by
common carrier to customers. Tennis Pro owns retail and warehouse space in Virginia and has another warehouse in Kentucky. Where does
Tennis Pro have income tax nexus?
Virginia and Kentucky.
Tennis Pro is protected by Public Law 86-272 except where it owns property.
References
Essay Difficulty: 1 Easy Learning Objective: 23-03 Identify whether a business has
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro decides to expand into Pennsylvania during the current year and try
some new sales techniques. Tennis Pro advertises on local radio and television as well as in national tennis magazines sent into Pennsylvania.
Salespeople give away promotional materials and occasionally sell demonstration models to local shop employees to build goodwill for Tennis
Pro. Tennis Pro holds sales meetings at rented space in local hotels. Personnel occasionally fix minor problems such as tape and strings without
charge. One employee performed a credit check for a major account that needed merchandise immediately. Each salesperson is allowed an
allowance for a car and office equipment to be maintained in an in-home office. Do any of Tennis Pro's activities have the potential to create
income tax nexus?
The sale of demonstration models, the repairs, and the credit check all create income tax nexus.
Sale of merchandise is not a protected activity, minor repairs, even without charge, are not a protected activity, and a credit check is not
protected—but a one-time violation could be considered de minimis.
References
liabilities.
Big Company and Little Company are both owned by Mrs. Smith. Big and Little file a consolidated federal tax return. Big manufactures office
paper and other paper supplies and is based in Washington. Little operates a logging operation in Montana. Sixty percent of Little's sales are
made to Big. Ten percent of Big's raw materials come from Little. There are no common officers or board members. There are no common
service providers. What are the factors for and against filing a unitary tax return?
For a unitary tax return: functional integration. Against: centralization of management and economies of scale.
There is a vertical integration and flow of value between the companies, which suggests unitary treatment. However, there is little or no
centralization of management or economies of scale, which would suggest that unitary treatment is inappropriate.
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufactures, and customizes tennis racquets for serious
amateurs. Tennis Pro's business has expanded significantly over the last few years. Currently, it has sales personnel in 9 states (Virginia, North
Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, and New Jersey) and the District of Columbia. All sales activity in all of
these states is limited to solicitation. Orders are received by the sales team and forwarded to Blacksburg for approval. All orders are sent by
common carrier to customers. Tennis Pro owns retail and warehouse space in Virginia and has another warehouse in Kentucky. Is Tennis Pro
subject to Ohio's Commercial Activity Tax (a nonincome-based tax)?
Yes.
Public Law 86-272 doesn't protect against nonincome-based taxes, like the Ohio Commercial Activity Tax. Assuming the Payroll in Ohio
exceeds the bright-line test of at least $50,000 there would be nexus.
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has sales as follows:
Tennis Pro's Sales:

State Sales
District of Columbia $ 184,031
Georgia 420,421
Virginia 903,293
Other 734,035
Totals $ 2,241,780
Assume that Tennis Pro's other sales include $150,000 of sales to a federal government entity that were shipped from Virginia to Maryland.
What is Tennis Pro's Virginia sales numerator and sales factor? (Round the sales factor to two decimal places.)
$1,053,293 and 46.98 percent.
$1,053,293 ($903,293 + $150,000 of government sales) and 46.98 percent ($1,053,293/$2,241,780).
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has sales as follows:
Tennis Pro's Sales:

State Sales
Georgia 420,473
Virginia 903,345
Other 734,100
Totals $ 2,242,001
Assume that Tennis Pro's other sales include $151,300 of sales to a federal government entity that were shipped from Virginia to Maryland.
What is Tennis Pro's Virginia sales numerator and sales factor? (Round the sales factor to two decimal places.)
$1,054,645 and 47.04 percent.
$1,054,645 ($903,345 + $151,300 of government sales) and 47.04 percent ($1,054,645/$2,242,001).
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has payroll as follows:
Tennis Pro's Payroll:

State Payroll
Georgia $ 80,000
Virginia $ 250,000
Other $ 90,000
Totals $ 465,500
The other total includes $10,000 of salary of a Virginia employee that works part time in another state. What is Tennis Pro's Virginia payroll
numerator and payroll factor? (Round the payroll factor to two places.)
$260,000 and 55.85 percent.
$260,000 ($250,000 + $10,000) and 55.85 percent ($260,000/$465,500). All payroll is sourced to the state where an employee is based.
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has payroll as follows:
Tennis Pro's Payroll:

State Payroll
Georgia $ 89,000
Virginia $ 282,000
Other $ 100,500
Totals $ 524,000
The other total includes $29,400 of salary of a Virginia employee that works part time in another state. What is Tennis Pro's Virginia payroll
numerator and payroll factor? (Round the payroll factor to two places.)
$311,400 and 59.43 percent.
$311,400 ($282,000 + $29,400) and 59.43 percent ($311,400/$524,000). All payroll is sourced to the state where an employee is based.
References
liabilities.
Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro has property as follows:
Tennis Pro's Property:

District of Columbia $ 43,021 $ 41,983
Georgia $ 92,385 $ 83,024
Virginia $ 1,331,919 $ 1,438,439
Other $ 68,203 $ 68,203
Totals $ 1,535,528 $ 1,631,649
What is Tennis Pro's Virginia property numerator and property factor? (Round the property factor to two places.)
$1,385,179 and 87.47 percent.
$1,385,179 [($1,331,919 + $1,438,439)/2] and 87.47 percent [($1,385,179/($1,535,528 + $1,631,649)/2)].
References
liabilities.

Georgia $ 92,415 $ 83,060
Virginia $ 1,367,919 $ 1,471,319
Other $ 68,245 $ 68,245
Totals $ 1,571,624 $ 1,664,631
What is Tennis Pro's Virginia property numerator and property factor? (Round the property factor to two places.)
$1,419,619 and 87.73 percent.
$1,419,619 [($1,367,919 + $1,471,319)/2] and 87.73 percent [($1,419,619/($1,571,624 + $1,664,631)/2)].
References
liabilities.

Georgia $ 92,385 $ 83,024
Virginia $ 1,331,919 $ 1,438,439
Other $ 68,203 $ 68,203
Totals $ 1,535,528 $ 1,631,649
Tennis Pro also rents Virginia property at an annual rent of $24,000. What is Tennis Pro's Virginia property numerator and property factor?
(Round interim calculations to the nearest whole number and the property factor to two decimal places.)
$1,577,179 and 88.83 percent.
The annual rent of $24,000 times 8 = $192,000. The numerator is $1,577,179 [(($1,331,919 + $1,438,439)/2) + $192,000]. The denominator is
$1,775,589 [(($1,535,528 + $1,631,649)/2) + $192,000]. The factor is 88.83 percent ($1,577,179/$1,775,589).
References
liabilities.
Tennis Pro’s Property:

Georgia $ 92,415 $ 83,060
Virginia $ 1,367,919 $ 1,471,319
Other $ 68,245 $ 68,245
Totals $ 1,571,624 $ 1,664,631
Tennis Pro also rents Virginia property at an annual rent of $24,000. What is Tennis Pro's Virginia property numerator and property factor?
(Round interim calculations to the nearest whole number and the property factor to two decimal places.)
$1,611,619 and 89.03 percent.
The annual rent of $24,000 times 8 = $192,000. The numerator is $1,611,619 [(($1,367,919 + $1,471,319)/2) + $192,000]. The denominator is
$1,810,128 [(($1,571,624 + $1,664,631)/2) + $192,000]. The factor is 89.03 percent ($1,611,619/$1,810,128).
References
liabilities.
Tennis Pro has the following sales, payroll, and property factors:
Virginia Maryland
Sales 40% 20%
Payroll 70% 5%
Property 90% 5%
What are Tennis Pro's Virginia and Maryland apportionment factors if both states use an equally weighted three-factor formula?
66.67 and 10 percent, respectively.
[(40% + 70% + 90%)/3], [(20% + 5% + 5%)/3].
References
liabilities.
Virginia Maryland
Sales 42% 21%
Payroll 71% 6%
Property 91% 6%
What are Tennis Pro's Virginia and Maryland apportionment factors if both states use an equally weighted three-factor formula?
68.00 and 11 percent, respectively.

[(42% + 71% + 91%)/3], [(21% + 6% + 6%)/3].
References
liabilities.
Virginia Maryland
Sales 40% 20%
Payroll 70% 5%
Property 90% 5%
What would Tennis Pro's Virginia and Maryland apportionment factors be if Virginia used a double-weighted sales four-factor method and
Maryland used a single-factor sales formula?
60 percent and 20 percent, respectively.
[(40% + 40% + 70% + 90%)/4] and 20%.
References
liabilities.
Virginia Maryland
Sales 42% 21%
Payroll 71% 6%
Property 91% 6%
What would Tennis Pro's Virginia and Maryland apportionment factors be if Virginia used a double-weighted sales four-factor method and
Maryland used a single-factor sales formula?
61.50 percent and 21 percent, respectively.
[(42% + 42% + 71% + 91%)/4] and 21%.
References
liabilities.
Tennis Pro, a Virginia corporation domiciled in Virginia, has the following items of income: $5,000 of dividend income, $15,000 of interest
income, $10,000 of rental income from Georgia property, and $30,000 of royalty income for an intangible used in Maryland (where income tax
nexus exists). Determine how much income is allocated to Virginia.
$20,000.
$5,000 of dividend income and $15,000 of interest income.
References
liabilities.
Tennis Pro, a Virginia corporation domiciled in Virginia, has the following items of income: $5,200 of dividend income, $15,400 of interest
income, $10,080 of rental income from Georgia property, and $30,120 of royalty income for an intangible used in Maryland (where income tax
nexus exists). Determine how much income is allocated to Virginia.
$20,600.
$5,200 of dividend income and $15,400 of interest income.
References
liabilities.
Tennis Pro is headquartered in Virginia. Assume it has a state income tax base of $200,000. Of this amount, $60,000 was nonbusiness income.
Assume that Tennis Pro's Virginia apportionment factor is 73.28 percent. The nonbusiness income allocated to Virginia was $23,000. Assuming
a Virginia corporate tax rate of 5.5 percent, what is Tennis Pro's Virginia state income tax liability? (Round your answer to the nearest whole
number.)
$6,908.
$200,000 (state tax base) − $60,000 (nonbusiness income) is $140,000 of business income. $140,000 of business income multiplied by the
73.28 Virginia apportionment percentage is Virginia business income of $102,592. The $102,592 of Virginia business income is added to the
$23,000 of nonbusiness income allocated to Virginia to arrive at taxable income of $125,592, which is multiplied by 5.5 percent.
References
liabilities.
Tennis Pro is headquartered in Virginia. Assume it has a state income tax base of $212,000. Of this amount, $84,000 was nonbusiness income.
Assume that Tennis Pro's Virginia apportionment factor is 73.28 percent. The nonbusiness income allocated to Virginia was $29,000. Assuming
a Virginia corporate tax rate of 5.5 percent, what is Tennis Pro's Virginia state income tax liability? (Round your answer to the nearest whole
number.)
$6,754.
$212,000 (state tax base) − $84,000 (nonbusiness income) is $128,000 of business income. $128,000 of business income multiplied by the
73.28 Virginia apportionment percentage is Virginia business income of $93,798. The $93,798 of Virginia business income is added to the
$29,000 of nonbusiness income allocated to Virginia to arrive at taxable income of $122,798, which is multiplied by 5.5 percent.
References
liabilities.
Tennis Pro is headquartered in Virginia. Assume it has a Kentucky state income tax base of $220,000. Of this amount, $40,000 was
nonbusiness income. Assume that Tennis Pro's Kentucky sales, payroll, and property apportionment factor are 12, 5, and 3 percent, respectively.
Assume that Kentucky uses a single-factor sales formula apportionment method. The nonbusiness income allocated to Kentucky was $1,000.
Assuming Kentucky's corporate tax rate is 6 percent, what is Tennis Pro's Kentucky state income tax liability?
$1,356.
$220,000 (state tax base) − $40,000 (nonbusiness income) is $180,000 of business income. $180,000 of business income multiplied by the 12
percent Kentucky apportionment percentage equals Kentucky business income of $21,600. The $21,600 of Kentucky business income is added
to the $1,000 of nonbusiness income allocated to Kentucky to arrive at taxable income of $22,600, which is multiplied by 6 percent.
References
liabilities.
Tennis Pro is headquartered in Virginia. Assume it has a Kentucky state income tax base of $315,000. Of this amount, $59,000 was
nonbusiness income. Assume that Tennis Pro's Kentucky sales, payroll, and property apportionment factor are 13, 6, and 4 percent, respectively.
Assume that Kentucky uses a single-factor sales formula apportionment method. The nonbusiness income allocated to Kentucky was $10,500.
Assuming Kentucky's corporate tax rate is 6 percent, what is Tennis Pro's Kentucky state income tax liability?
$2,627.
$315,000 (state tax base) − $59,000 (nonbusiness income) is $256,000 of business income. $256,000 of business income multiplied by the 13
percent Kentucky apportionment percentage equals Kentucky business income of $33,280. The $33,280 of Kentucky business income is
added to the $10,500 of nonbusiness income allocated to Kentucky to arrive at taxable income of $43,780, which is multiplied by 6 percent.
References
liabilities.
Assume Tennis Pro attends a sports equipment expo in Washington state. Assume this activity creates nexus for the Business & Occupation
(B&O) tax. Assume the tax is 0.5 percent of gross receipts for retailers and 1.5 percent of gross receipts on services. If Tennis Pro has $20,000
of Washington retail sales and $2,000 of services performed, calculate Tennis Pro's B&O tax.
$130.
($20,000 × 0.005) + ($2,000 × 0.015).
References
liabilities.
Assume Tennis Pro attends a sports equipment expo in Washington state. Assume this activity creates nexus for the Business & Occupation
(B&O) tax. Assume the tax is 0.5 percent of gross receipts for retailers and 1.5 percent of gross receipts on services. If Tennis Pro has $33,600
of Washington retail sales and $5,800 of services performed, calculate Tennis Pro's B&O tax.
$255.
($33,600 × 0.005) + ($5,800 × 0.015).
References
liabilities.
Assume Tennis Pro discovered that one salesperson has gone into Arkansas once each year for the past four years and performed activities
that create both sales tax nexus and income tax nexus. Assume that Arkansas sales were $25,000 each year. Assume that Tennis Pro business
income would be $200,000 each year and that Tennis Pro's Arkansas apportionment percentage would be 1 percent. Assume there would be
no Arkansas nonbusiness income. Assume that Arkansas sales and use tax rate was 6.5 percent and corporate income tax rate was 5 percent.
What would Tennis Pro's Arkansas sales and use tax and income tax liability be, ignoring any possible penalties and interest?
$6,500 and $400, respectively.

The $6,500 sales tax liability is $25,000 × 6.5 percent × 4 years. The $400 income tax liability is $200,000 × 1 percent × 5 percent × 4 years.
References
liabilities.

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1. Award: 1.

2. Award: 1.00 point

3. Award: 1.00 point

State tax law is comprised solely of legislative authority.

5. Award: 1.00 point

Nondomiciliary businesses are subject to tax everywhere they do business.

6. Award: 1.00 point

8. Award: 1.00 point

9. Award: 1.00 point

Business income is allocated to the state of commercial domicile.

11. Award: 1.00 point

All 50 states impose a sales and use tax system.

Alaska, Delaware, Montana, New Hampshire, and Oregon do not.

12. Award: 1.00 point

14. Award: 1.00 point

15. Award: 1.00 point

17. Award: 1.00 point

Economic presence always creates sales tax nexus.

18. Award: 1.00 point

20. Award: 1.00 point

Wyoming imposes an income tax on corporations.

21. Award: 1.00 point

Businesses must pay income tax in their state of commercial domicile.

23. Award: 1.00 point

24. Award: 1.00 point

26. Award: 1.00 point

Delivery of tangible personal property through common carrier is a protected activity.

27. Award: 1.00 point

Wrigley deﬁned solicitation for purposes of Public Law 86-272.

29. Award: 1.00 point

The time limit is typically two weeks or less.

30. Award: 1.00 point

32. Award: 1.00 point

33. Award: 1.00 point

35. Award: 1.00 point

36. Award: 1.00 point

38. Award: 1.00 point

39. Award: 1.00 point

41. Award: 1.00 point

42. Award: 1.00 point

The payroll factor includes payments to independent contractors.

44. Award: 1.00 point

45. Award: 1.00 point

47. Award: 1.00 point

48. Award: 1.00 point

Interest and dividends are allocated to the state of commercial domicile.

Rental income is allocated to the state of commercial domicile.

50. Award: 1.00 point

A gross receipts tax is subject to Public Law 86-272.

51. Award: 1.00 point

Which of the following is true regarding state and local taxes?

 All states impose a state income tax.

 Every jurisdiction imposes a sales or use tax.

 The primary purpose of state and local taxes is to raise revenue.

 Income or franchise taxes

 Sales or use taxes

53. Award: 1.00 point

Which of the following law types is not a primary authority source?

54. Award: 1.00 point

 The location where a business is headquartered.

 The location where a business is incorporated.

 The location from which a business directs its operations.

 None of the choices are correct.