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Exam 23: State and Local Taxes

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Question 51

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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. 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: $\begin{array}{l}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Mahre Sales }\\\begin{array}{lrrrr}\underline{\text { State }} & \underline{\text { Goods }} & \underline{\text { Services }} & \underline{\text { Total }} \\\text{Alaska} & \$ 23,194 & \$ 0 & \$ 23,194 \\\text { Colorado } & 10,612 & 0 & 10,612 \\\text { Maine } & 35,913 & 156,084 & 191,997 \\\text { New Hampshire } & 26,721 & 325,327 & 352,048 \\\text { New York } & 65,431 & 0 & 65,431 \\\text { Vermont } & \underline{41,982} & \underline{277,441} & \underline{319,423} \\\text { Totals } & \$ 203,853 & \$ 758,852 & \$ 962,705\end{array}\end{array}$ Assume the following tax rates: Alaska (6.6 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?

A) $10,386
B) $14,543
C) $26,733
D) $61,289

E) None of the above
F) A) and C)

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Question 52

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The throwback rule includes inventory in transit in the numerator of the state where it was shipped from.

A) True
B) False

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Question 53

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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. 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 and use tax nexus.

Businesses must collect sales tax only in states where it has sales and use tax nexus.

The state tax base is computed by making adjustments to federal taxable income.

The trade-show rule allows businesses to maintain a sample room for up to four weeks per year.

Giving samples and promotional materials without charge is a protected solicitation activity.

Mighty Manny, Incorporated manufactures and services deli machinery and distributes them across the United States. Mighty Manny is incorporated and headquartered in New Jersey. It has sales and use tax nexus in Connecticut, New Jersey, New York, Pennsylvania, Rhode Island, and South Carolina. Mighty Manny has sales as follows: $\begin{array}{l}\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Mighty Manny's Sales }\\\\\begin{array} { l r r r } \underline { \text { State } } & \underline { \text { Goods } } & \underline { \text { Services }} & \underline { \text { Total } } \\ \text { Connecticut } & \$ 359,294 & \$ 39,201 & \$ 398,495 \\\text { New Jersey } & 1,304,292 & 382,984 & 1,687,276 \\\text { New York } & 929,402 & 325,327 & 1,254,729 \\\text { Pennsylvania } & 320,481 & 93,203 & 413,684 \\\text { Rhode Island } & 85,419 & 0 & 85,419 \\\text { South } & & & \\\text { Carolina } & \underline { 52,427 } & \underline { 0 } & \underline { 52,427 } \\\text { Totals } & \$ 3,051,315 & \$ 840,715 & \$ 3,892,030\end{array}\end{array}$ 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 Connecticut also taxes Mighty Manny's services. What is Mighty Manny's total sales and use tax liability?

In Complete Auto Transit the court determined eight criteria for determining whether a state can tax a nondomiciliary company.

Gordon operates the Tennis Pro Shop in Blacksburg, Virginia. Tennis Pro sells, manufacturers, 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 10 states (Virginia, North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Ohio, Maryland, District of Columbia, New Jersey). All in state activity 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?

Which of the following is incorrect regarding nondomiciliary businesses?

Failure to collect and remit sales taxes often results in a larger tax liability than failure to pay income taxes.

State tax law is comprised solely of legislative authority.

The payroll factor includes payments to independent contractors.

Super Sadie, Incorporated manufactures sandals and distributes them across the southwestern United States. Assume that Super Sadie has sales and use tax nexus in Arizona, California, Colorado, New Mexico, and Texas. Super Sadie has sales as follows: $\begin{array}{l}\text { Super Sadie Sales }\\\begin{array} { l r } \underline{\text { State }} & \underline { \text { Goods } } \\\text { Arizona } & \$ 583,194 \\\text { California } & 1,003,923 \\\text { Colorado } & 487,204 \\\text { New } & \\\text { Mexico } & 201,932 \\\text { Oregon } & 502,940 \\\text { Texas } & 892,048 \\\text { Utah } & \underline { 302,109 } \\\text { Totals } & \$ 3,973,350\end{array}\end{array}$ Assume the following sales tax rates: Arizona (6 percent), California (8 percent), Colorado (7 percent), New Mexico (6.5 percent), Oregon (7.25 percent), Texas (8 percent), and Utah (5 percent). What is Super Sadie's total sales and use tax liability?

Tennis Pro is headquartered in Virginia. Assume it has a Kentucky state income tax base of $220,000. Of this amount, $40,000 was non-business 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 non-business income allocated to Kentucky was $1,000. Assuming Kentucky's corporate tax rate of 6 percent, what is Tennis Pro's Kentucky state tax liability?

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 property. 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 and use tax liability?

Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?

All 50 states impose a sales and use tax system.

Tennis Pro, a Virginia Corporation, has the following items of income: $5,000 of dividend income, $15,000 of interest income, $10,000 of rental income from Georgia property, $30,000 of royalty income for an intangible used in Maryland (where nexus exists). Determine how much income is allocated to Virginia.