25 May Question 1. Bert Corporation, a calendar-year taxpayer, owns prope
Question
1. Bert Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value.
| Account Balances at Beginning of Year | |||
| State M | State O | Totals | |
| Inventories | $ 200,000 | $300,000 | $ 500,000 |
| Building & machinery (cost) | 700,000 | 300,000 | 1,000,000 |
| Accumulated depreciation | (150,000) | (50,000) | (200,000) |
| Land | 400,000 | 200,000 | 600,000 |
| Totals | $1,150,000 | $750,000 | $1,900,000 |
| Account Balances at Year-End | |||
| State M | State O | Totals | |
| Inventories | $ 400,000 | $100,000 | $ 500,000 |
| Building & machinery (cost) | 800,000 | 500,000 | 1,300,000 |
| Accumulated depreciation | (300,000) | (100,000) | (400,000) |
| Land | 400,000 | 200,000 | 600,000 |
| Totals | $1,300,000 | $700,000 | $2,000,000 |
| Annual rent payments | $ 50,000 | $ 25,000 |
Bert’s State M property factor is:
a. 75.0%.
b. 66.7%.
c. 64.9%.
d. 64.5%.
2. Valdez Corporation, a calendar-year taxpayer, owns property in States M and O. Both M and O require that the average value of assets be included in the property factor. M requires that the property be valued at its historical cost, and O requires that the property be included in the property factor at its net depreciated book value.
| Account Balances at Beginning of Year | |||
| State M | State O | Totals | |
| Inventories | $ 200,000 | $300,000 | $ 500,000 |
| Building & machinery (cost) | 700,000 | 300,000 | 1,000,000 |
| Accumulated depreciation | (150,000) | (50,000) | (200,000) |
| Land | 400,000 | 200,000 | 600,000 |
| Totals | $1,150,000 | $750,000 | $1,900,000 |
| Account Balances at Year-End | |||
| State M | State O | Totals | |
| Inventories | $ 400,000 | $100,000 | $ 500,000 |
| Building & machinery (cost) | 800,000 | 500,000 | 1,300,000 |
| Accumulated depreciation | (300,000) | (100,000) | (400,000) |
| Land | 400,000 | 200,000 | 600,000 |
| Totals | $1,300,000 | $700,000 | $2,000,000 |
Valdez’s O property factor is:
a. 35.0%.
b. 37.2%.
c. 39.5%.
d. 53.8%.
3. In the broadest application of the unitary theory, the U.S. unitary business files a combined tax return using factors and income amounts for all affiliates:
a. Organized in the U.S.
b. Organized in NAFTA countries.
c. Organized anywhere in the world.
d. As dictated by the tax treaties between the U.S. and the other countries.
4. A taxpayer wishing to reduce the negative tax effects of the application of the unitary theory might:
a. Affiliate with a service division that shows an operating loss, like one in research and development.
b. Acquire a unitary affiliate in a country with a high wage structure.
c. Add a profitable entity to the unitary group.
d. a. and b.
5. In most states, a limited liability company (LLC) is subject to the state income tax:
a. As though it were a C corporation.
b. As though it were a unitary business.
c. As a flow-through entity, similar to its Federal income tax treatment.
d. LLCs typically are exempted from state income taxation.
6. A state sales tax usually falls upon:
a. Sales of groceries.
b. Sales of widgets made to out-of-state customers.
c. Sales of widgets made to the ultimate consumer of the product or service.
d. Sales of real estate.
7. A state sales tax usually falls upon:
a. The sale of a used dinette set sold at a rummage sale.
b. The sale of a dinette set by the manufacturer to a furniture retailer.
c. The sale of a case of Bibles by the publisher to a church bookstore.
d. The sale of a Bible to a member of the church.
e. All of the above are exempt transactions.
8. A use tax applies when a State A resident purchases:
a. A new automobile from a State A dealership.
b. A used automobile from the web site of a State A dealership.
c. A new automobile from a State B dealership, then using the car back at home.
d. A new automobile that is purchased from an online seller.
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