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REG
Multijurisdictional Tax Issues
38
Accounting
Undergraduate 4
01/27/2012

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Cards

Term
Sales taxes
Definition
  • levied on tangible personal property and some services
  • exemptions vary state to state but usually include items bought for resale and that are used in manufacturing
Term
use taxes
Definition
levied on use of tangible personal property that wasn't purchased in state
Term
4 rules for property taxes
Definition
  1. based on value of real property and personal property
  2. exemptions for inventory
  3. some states also tax intangible property
  4. levied for property owned at a specific date
Term
2 rules of franchise tax 
Definition
  1. levied on privilege of doing business in a state
  2. based on the value of the capital used in the jurisdiction (common stock, paid-in-capital, and retained earnings)
Term
3 rules excise tax
Definition
  1. levied on the quantity of an item or sales price
  2. can be charged to consumer or manufacturer
  3. examples include gas, booze, cigarettes
Term
unemployment tax
Definition
levied on taxable wages with a per employee limit (usually $7000)
Term
incorporation fees
Definition
charges for incorporating in a state or registering to do business in a state
Term
4 Supreme Court developed tests to determine jurisdiction to tax
Definition
  1. business activity must have substantial nexus with state
  2. tax must be fairly apportioned
  3. tax can't discriminate against interstate commerce
  4. tax must be fairly related to services that the state provides
Term
nexus
Definition
degree of the relationship that must exist between a state and a foreign corporation to have the right to impose tax
Term
4 situations in which nexus doesn't exist if activity is limited to
Definition
  1. soliciting sales of tangible personal property that are approved and shipped outside the state
  2. advertising
  3. determining reorder need of customers
  4. furnishing autos to sales staff
Term
7 sufficient activities to cause nexus
Definition
  1. approving/accepting orders
  2. hiring/supervising/training employees other than sales staff
  3. installation
  4. maintaining an office or warehouse 
  5. providing maintenance or engineering services
  6. making repairs
  7. investigating credit worthiness or collecting delinquent accounts
Term
2 business income classification tests
Definition
  1. generated from business's regular operations (transactional test)-OR-
  2. from sale of property that is an integral part of the business
Term
business income when nexus in more than one state
Definition
apportioned among all the states in which the corporation does business
Term
nonbusiness income
Definition
  • investment income and income from transactions not part of regular operations.
  • allocated to state of incorporation
Term
3 factors for business income apportionment
Definition
  1. sales factor=total sales in state/total sales    
  2. property factor= avg value of prop in state/value of all prop
  3. payroll factor=compensation paid or accrued in state/total compensation paid or accrued
Term
sales factor rule
Definition
state is determined by point of delivery unless business doesn't have nexus in that state (state then is where sale originated)
Term
3 property factor rules
Definition
  1. limited to real property and tangible personal property (not cash)
  2. includes leased property (annual lease X 8)
  3. only included if used for production of business income
Term
payroll factor rules
Definition
  1. compensation includes fringe benefits if taxable under federal law
  2. payments to independent contractors and paid into sec. 401(k) plans usually not included
  3. included only if relates to production of business income
Term
4 pieces of Uniform Division of Income for Tax Purposes Act
Definition
  1. adopted to promote uniformity in state allocation and apportionment rules.
  2. says income goes to state with greatest cost-of-performance
  3. intangible assets excluded
  4. TP can petition for things if unhappy with result
Term
requirements of unitary groups (combining transactions on one return)
Definition
  1. ownership-more than 50%
  2. opeerations
  3. use- centralized management

can be included: partnerships, business even if not nexus 

Term
State Income Tax Computation (starting at federal taxable income)
Definition

add: DRD, expenses related to interest earned on U.S. bonds, state income taxes, depreciation in excess of that allowed for state, and municipal interest taxed for state purposes

 

subtract: federal income taxes paid, expenses related to municipal interest income, interest on U.S. bonds, and depreciation in addition to that allowed for federal purposes

Term
unearned income sourcing 
Definition
foreign if received from a foreign resident or for property used in a foreign country
Term
sourcing for income from sale of personalty
Definition

based on resident of seller except...

 

  1. inventory sourced where title transfers
  2. for depreciable property, recapture is sourced where depreciation was claimed and  remaining gain is sourced where title transfers
Term
sourcing for sale of intangibles
Definition
where amortization was claimed.  
Term
sourcing for use of intangibles
Definition
country in which property was used
Term
sourcing for sale or exchange of real property
Definition
based on location of the property
Term
sourcing for use of tangible real property
Definition
country in which property is located
Term
interest income is u.s. source if received from what 3 types of entities
Definition
  1. u.s. government
  2. noncorporate u.s. residents
  3. domestic corporations
Term
when would interest received from a u.s. corporation be considered foreign source?
Definition
when the corporation has received more than 80% of its active business income from foreign sources over the past 3 years
Term
sourcing of dividends
Definition
from u.s. corporation=u.s. source, foreign corporation = foreign source
Term

when would dividends received from a foreign corporation be considered U.S. source?

 

Definition
when the foreign corporation receives more than 25% of its gross income of the last 3 years from income connected with a U.S. business 
Term
assets transfered from U.S. corporation to a foreign corporation
Definition
if used in a trade or business outside the U.S., gain is deferred unless the property is...
 
  1. inventory
  2. installment obligations
  3. foreign currency
Term
Controlled Foreign Corporations (CFC)
Definition
a foreign corporation for which more than 50% of the voting power or value of stock is owned by U.S. shareholders (limited to those who own, direct and indirect, 10% or more of the company) on any day of the tax year
Term
2 types of income of CFC that is taxed to U.S. shareholders as constructive dividend (Subpart F income)
Definition
  1. income not connected economically to the country in which the corporation is organized
  2. income from insuring the risk of loss from outside the country in which the corporation is orgainzed
Term
limitation rule for foreign taxes paid credit
Definition

if U.S. effective tax rate > foreign effective rate then the credit is limited to

 

U.S. tax on worldwide income X (foreign sourse taxable income / Worldwide taxable income)

Term
qualification rules for individuals to be eligible for foreign-earned income exclusions
Definition
  1. during a continuous periods that includes an intire tax year, individual must be a bona fide resident of at least one foreign country OR
  2. must have a tax home in a foreign contry and must have been present in one or more foreign countries for at least 330 days during any 12 consecutive months (if there for 330-365 days, exclusion is pro-rated on daily basis)
Term
2 exclusion examples of foreign-income for qualified individuals 
Definition
  1. foreign-earned income from personal services, limited to $92,900 in 2011
  2. employer provided foreign housing income, limited to $13,006 in 2011 (only to the extent it exceeds $14,864 in 2011)
Term
2 rules for foreign currency gains and losses
Definition
  1. g/l resulting from the normal course of business operations are ordinary
  2. g/l resulting from investment or personal transactions are capital
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