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Exam 13: Jurisdictional Issues in Business Taxation

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Question 21

True/False

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BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

A) True
B) False

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Question 22

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Lexington Corporation conducts business in four states. In state A, its sales factor is 50%, its payroll factor is 14%, and its property factor is 29%. State A uses an equally-weighted three-factor apportionment formula, but plans to change to a formula that double-weight the sales factor. Which is of the following statements is true?

A) Lexington's tax liability to state A will increase.
B) Any increase in Lexington's tax liability to state A will be offset by a decline in tax liability to other states.
C) Lexington's tax liability to state A will decrease.
D) Lexington's tax liability to state A will be unaffected by this change.

E) A) and B)
F) All of the above

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Question 23

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Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

Albany, Inc. does business in states C and D. State C uses an apportionment formula that double-weights the sales factor; state D apportions income using an equally-weighted three-factor formula. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows. Calculate Albany's income taxable in each state.

Cheney is a controlled foreign corporation with total foreign earnings of $4 million, of which $1.3 million is considered subpart F income. Cheney owns tangible business property with an adjusted tax basis of $6 million. Compute Cheney's global intangible low-taxed income.

Transfer prices cannot be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions.

Tri-State's, Inc. operates in Arkansas, Oklahoma, and Kansas. Assume that each state has adopted the UDITPA formula. During the corporation's tax year ended December 31, the apportionment data indicated: -Tri-State's income for the current year is $250,000. Approximately how much income will be taxed by Oklahoma?

Fallon Inc., a U.S. corporation, owns stock in several foreign corporations. This year, Fallon received $420,000 as a dividend from Mars Corporation, and $225,000 as a dividend from Jupiter Inc. Mars is a foreign corporation in which Fallon has owned 8 percent of the outstanding stock for ten years. Jupiter is a foreign corporation in which Fallon has owned 17 percent of the outstanding stock for two years. Compute Fallon's allowable dividends-received deduction for these foreign dividends.

Which of the following statements regarding controlled foreign corporations is true?

Transfer pricing issues arise:

Macon, Inc., a U.S. corporation, owns stock in four corporations operating overseas. Which of the following will qualify for the 100% dividends-received deduction?

This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

This year, Plateau, Inc.'s before-tax income was $4,765,000. Plateau paid $310,000 income tax to state A and $130,000 income tax to state B. a. Compute Plateau's federal taxable income and tax liability. b. What is Plateau's overall income tax rate?

Economic nexus:

S. parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country typically does not owe any U.S. tax on the dividend.

A foreign source dividend received by a U.S. corporation after 2017 is eligible for the 50% dividends-received deduction.

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Which of the following statements about subpart F income is false?

Kraze, Inc., a calendar year domestic corporation, owns 50 percent of the stock of Malik, a calendar year specified foreign corporation. Prior to 2018, Malik has accumulated deferred foreign earnings of $40 million and an aggregate foreign cash position of $5.1 million. Assume Malik paid zero foreign tax on its earnings. a. Calculate Kraze's mandatory inclusion amount for Malik's deferred foreign earnings and its pro rata share of Malik's foreign cash position. b. Calculate Kraze's incremental tax liability on its mandatory inclusion amount. c. Determine Kraze's installment payments of the tax liability on its mandatory inclusion amount. Assume such payments begin in 2017.