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Exam 16: Multi-Juris-Dictional Taxation

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Question 31

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Ramirez Corporation is subject to income tax only in State A.Ramirez generated the following income and deductions. $\begin{array} { l r } \text { Federal taxable income } & \$ 500,000 \\\text { State A income tax expense } & 45,000 \\\text { Depreciation allowed for Federal tax purposes } & 300,000 \\\text { Depreciation allowed for state tax purposes } & 250,000\end{array}$ ? Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Ramirez's A taxable income is:

A) $495,000.
B) $500,000.
C) $545,000.
D) $595,000.

E) B) and C)
F) A) and B)

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Question 32

Multiple Choice

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Boot Corporation is subject to income tax in States A and B.Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. $\begin{array} { l r r r } & \text { State A } & \text { State B } & \text { Totals } \\\text { Sales } & \$ 200,000 & \$ 600,000 & \$ 800,000 \\\text { Payroll } & 100,000 & 50,000 & 150,000 \\\text { Property } & 200,000 & 50,000 & 250,000\end{array}$ ? How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?

A) ($50,000)
B) $50,000
C) $16,100
D) ($16,100)

E) A) and B)
F) A) and C)

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Question 33

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In allocating interest expense between U.S.and foreign sources, a taxpayer elects to use either the tax basis of the income-producing assets or their fair market values.

Maxim, Inc., a U.S.corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly-owned foreign corporation.ForCo's undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings.What is Maxim's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

Freda was born and continues to live in Uruguay.She exports widgets to U.S.customers.The U.S.does not have in force an income tax treaty with Uruguay.Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

Jaime received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000.Jaime's total U.S.tax liability is $800,000 (the 35% marginal tax rate applies).Jaime's current year FTC is $87,500.

Under P.L.86-272, the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

State Q wants to increase its income tax collections, but politically it would be unwise to raise taxes on in-state individuals or businesses.Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula.Q allocates nonbusiness income amounts. ? Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.

General Corporation is taxable in a number of states.This year, General made a $100,000 sale from its A headquarters to a customer in B.General has not established nexus with B.State A does not apply a throwback rule.In which state(s) will the sale be included in the sales factor numerator?

Winnie, Inc., a U.S.corporation, receives a dividend of $400,000 from a non-CFC foreign corporation.Deemed-paid foreign taxes attributable to the dividend are $120,000.If Winnie elects the FTC, its gross income attributable to this dividend is $400,000.

Dark, Inc., a U.S.corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany.Dark reports $100,000 of taxable income from Dunkel on its U.S.tax return, along with $400,000 of taxable income from its U.S.operations.Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income.Assuming a U.S.tax rate of 35%, what is Dark's U.S.tax liability after any allowable foreign tax credits?

Politicians frequently use tax credits and exemptions to create economic development incentives.

ForCo, a subsidiary of a U.S.corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany.The income from the sale of widgets is not Subpart F foreign base company sales income.

USCo, a U.S.corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld.Its worldwide taxable income is $1,500,000 and its U.S.tax liability before the foreign tax credit is $525,000.What is USCo's allowed foreign tax credit?

USCo, a U.S.corporation, reports worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $15 million and it has paid $10 million of foreign income taxes attributable to these earnings.What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States.What is the source of AirCo's inventory sales income?

Simpkin Corporation owns manufacturing facilities in States A, B, and C.A uses a three-factor apportionment formula under which the sales, property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor, based solely on sales. Simpkin's operations generated $1,000,000 of apportionable income, and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array} { l r r r r } & \text { State A } & \text { State B } & \text { State C } & \text { Totals } \\\text { Sales } & \$ 400,000 & \$ 800,000 & \$ 300,000 & \$ 1,500,000 \\\text { Payroll } & 100,000 & 150,000 & 50,000 & 300,000 \\\text { Property } & 200,000 & 200,000 & 200,000 & 600,000\end{array}$ ? Simpkin's apportionable income assigned to B is:

Kim Corporation, a calendar year taxpayer, has manufacturing facilities in States A and B.A summary of Kim's property holdings follows. Determine Kim's property factors for the two states.A's statutes provide that the average historical cost of business property is to be included in the property factor.B's statutes provide that the property factor is based on the average depreciated basis of in-state business property.

Ting, a regional sales manager, works from her office in State W.Her region includes several states, as indicated in the sales report below.Determine how much of Ting's $300,000 compensation is assigned to the payroll factor of State W. $\begin{array} { l r r } \text { State } & \text { Sales Generated } & \text { Ting's Time Spent There } \\\mathrm { U } & \$ 1,000,000 & 15 \% \\\mathrm {~V} & 5,000,000 & 55 \% \\\mathrm {~W} & 4,000,000 & 30 \% \\& \$ 10,000,000 & 100 \%\end{array}$