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Corporate Income Tax II
Multistate Taxation
31
Accounting
Undergraduate 4
11/08/2010

Additional Accounting Flashcards

 


 

Cards

Term

 

 

 

En masse

Definition

 

 

 

All together

 

 

Term

 

How do states compute income for taxation?

Definition

 

 

Most state have adopted part or all of the Federal provisions

governing the definiton of income and the allowance of various exemptions, exclusions, and deductions

in the computation of taxable income.

Term

 

 

Does Federal Tax Law play a significant role

in the computation of stat taxable

income?

Definition

 

 

 

yes

Term

 

 

 

What is the starting point for

Definition

 

 

 

Federal Taxable Income

 

Generally

Term

 

 

 

What is UDITPA ???

Definition

 

 

U D I T P A

 

Uniform Division of Income for Tax Puposes Act

 

Uniform Division Income Tax Purposes Act

Term

 

 

 

What is the Uniform Division of Income

for Tax Purposes Act?

 

UDITPA

 

 

 

Definition

 

Is a model law relating to the assignment of income amoung the states for corporations that maintain operations in more

than one state

 

"Provisions under the"

Term

 

 

 

The Interstate Income Act of 1959, also known as Public Law 86-272,

Definition
The Interstate Income Act of 1959, also known as Public Law 86-272,[1] is a United States statute that allows a business to go, or send representatives, into a state to solicit orders for goods without being subject to a net income tax.[2] It is currently codified at 15 U.S.C. § 381
Term

 

 

What is Nexus???

Definition

 

 

Nexus describes the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out-of-state entity's income.

Term

 

 

 

Who defines Nexus?

 

State or Federal Law

Definition

 

 

State law defines the measure ofthe relationship that is necessary to create nexus.

Term

 

 

What is not protected under

 Public Law 87-272

Definition

 

 

1. Leases

2. Rentals

3. Dispositions

4. Intangible Propeties

5. Sales of Service,

the preforming of service in the state

 

   

Term

 

 

Independent Contractors

Definition

 

A Corporation can have an Independent Contractors  under Public Law 86-272 which extends immunity to certain in-state

activities which if performed by the Corporation (taxpayer)

would establish Nexus in the the state. Such as:

1) soliciting sales

2) making sales

3) Maintaining a sales office

Term

 

 

 

What is MTC???

Definition

 

 

The Multistate Tax Commission  writes regulations and other rules tha interpret the UDITPA

Term

 

 

 

What are the activities that 

 

DO NOT CREATE NEXUS. 

 

 

Definition
  • Advertising Campaigns
  • Carrying free samples only for display or distribution
  • Owning or furnishing automoblies to salespersons
  • passing inquiries or compaints on to the home office
  • Checking customer's inventories for reorder
  • Maintaining a sample or display room
  • Maintaining an office, in rental space or home for an employee
Term

 

 

Apportionment

Definition

 

Apportionment is a means by which a corporation's business

income is divided among the states in which it conducts business.

 

REMEMBER

 

Allocation differs from apportionment in that allocable income is assigned to one state, whereas apportionable income is divided

among several states.

Term

 

 

Allocation

Definition

 

 

Allocation is a method under which specific components of a corporation's income, net of related expenses, are directly assigned to a certain state.

Term

 

 

Generally Non-apportionable

(non-business)

income

 

includes:

 

Definition

 

1) Income or losses derived from the sale of nonbusiness real or tangible property

 

2) Income or losses derived from rentals and royalties from non-business real or tangible personal property

 

3) This income is allocated to the state where the property that generated the income or loss is located

Term

Activites that usually are sufficient to establish Nexus.

  • Making repairs or providing maintenances in state
  • Collecting delinquent accounts;
  • investigating creditworthiness
  • installation or supervision of installation
  • Conductin training classes, seminars, or lectures for persons other than sales personnel
  • Approving or accepting orders
Definition
  • Picking up or replacing damaged or returned property
  • Hiring, training, or supervisiong personnel other than sales employees
  • Providing shipping information and coordinating deliveries
  • Carrying samples for sale, exchange, or distribution in any manner for consideration or other value
  • Owning, leasing, maintaining, or otherwise usingany of the following facilities or property ....... (even ???? moblie retaining e.g., trucks with driver-salespersons)
Term

 

 

Public Law 86-272

Definition

 

Public Law 86-272 limits the states' rights to impose an income tax on certain interstate activities. This Federal law prohibits a state from taxing a business whose only connection with the state is to solicit orders for sales of tangible personal property that is sent outside the state for approval or rejection. If approved, the orders must be filled and shipped by the business from a point outside the state.

Term

 

 

Business and Nonbusiness Income

Definition

 

 

Business income is assigned among the states by using an apportionment formula which is unique to each state.

 

BUT nonbusiness income is either apportioned or allocated to

the state in which the income-producing asset is located

 

depending on the state tax laws.

Term

 

 

How do the apportionment factors and elements work?

Definition

 

Business income is approtioned among the states by determining the appropriate approtionment percentage for each state that has a right to tax the entity. To determine the apportionment percentage for each state, a ratio is established for each of the factors included in the state's apportionment formula. Each ratio is calculated by comparing the level of a specific business activity within a state to the total corporate activity of that type. The ratios then are summed, averaged, and appropriately weighted (if required) to determine the corporation's apportionment percentage for a specific state.

Term

 

 

What types of factors do states use in their

apportionment formulas?

Definition
  • Traditional three-factor equally weights sales, property, payroll
Term

 

 

 

Sales Factor

Definition

The Sales Factor is a faction whose numerator is the corporation's total sales in the state during the tax period. The denominator is the corporation's total sales everywhere during the tax eriod.

 

Gross sales for this purpose generally are net of returns, allowances, and discounts. Moreover, interest income, service charges and carrying charges are include in the sales factor. Federal and state excise taxes and state sales taxes are included in the factor if these taxes are either passed on to the buyer or included in the selling price of goods.

Term

 

Dock Sales

Definition

 

Dock Sales occur where the purchaser uses it owned or rented vehicles, or a common carrier which take delivery of the product at the seller's shipping dock.

 

If the seller makes dock sales to a purchaser that has an out-of-state location to which it returns with the product, the sale is assigned to the purchaser's state.

Term

 

 

Throwback Rule

Definition

 

 

The throwback rule provides that, when a corporation is not subject to tax in the destination state or the purchaser is the U.S. government, the sales are treated as instate sales of the origination state, and the actual destination of the product is disregarded. Consequently, when the seller is immune from the tax in the destination state under Public 86-272, the sales are considered to be in-state sales of the origination state if that state has a throwback provision.

Term

 

Payroll Factor

Definition

The payroll factor is determined by comparing the compensation paid for services rendered within a state to the total compensation paid by the corporation. Generally the payroll factor is a fraction, whose numerator is the total amount that a corporation paid or accrued for compensation in a state during the tax period. The denominator is the total amount paid or accrued by the corporation for compensation during the tax period.

Payments made to an independent contractor or any other person who is not properly classifiable as an employee generally are exclueded from the numerator and denominator of the payroll factor.

Term

 

 

The property factor

Definition

 

 

 

The property factor generally is a fraction, whose numerator is the average value of the corporation's real property and its tangible personal property owned and used or rented and used in the state during the taxable year. The denominator is the average value of all of the corporation's real property and its tangible personal property owned or rente and used during the taxable year, wherever it is located. In this manner, a state's property factor reflects the extent of the total property usage by the taxpayer in the state. 

Term

 

 

The Unitary Theory

Definition

Read carefully

 

A corporation is required to file a combined return that

includes the results from all of the operations of the related corporations, not just from those that transacted business in the state. This allows a state to apply the apportionment formula to a firm's nationwide or worldwide unitary income to include the activities of the corporation's subsidiaries in the apportionment formula.

Term

 

 

What is a Unitary Business?

Definition

 

 

A unitary business operates as a unit and cannot be segregated into independently operating divisions.

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