Exam Question 22 Which of the following is true? A Net rents from tangible personal property are allocated to the state of commercial domicile even when the B C D taxpayer is taxable in the state in which the property is utilized. It is generally an easy matter to characterize the rental income as apportionable (business) or nonapportionable income without knowing the nature of the taxpayer's business. Under the functional test, gain or loss from the sale, exchange, or other disposition of real or tangible personal property constitutes apportionable income if the property was used in the taxpayer's trade or business while owned by the taxpayer. Under UDITPA, all rental and royalty income from real and tangible personal property is allocable to the situs or location of the property producing the income, regardless of other facts. Exam Question 23 Which of the following is true? A B C D If rental income is classified as nonapportionable income, the underlying property is includible in the property factor of the taxpayer's apportionment formula. If the physical location of property during a rental period is unknown or unascertainable by the taxpayer, the tangible personal property is considered utilized in the state in which the property was located at the time the rent payer took possession. If the physical location of tangible personal property during a rental or royalty period is unknown or unascertainable by the taxpayer, the location is assumed to be the company's state of domicile. Under the functional test, gain from the sale of assets will be characterized as nonapportionable income as long as the taxpayer stops using the property immediately before the sale. Exam Question 24 Which of the following is true? A B C D Capital gains and losses from sales of real property located in the state are allocated to that state. Jones Inc. makes short-term leases of the equipment used in its business when it is not needed on any particular project. Under the MTC regulations, this should be classified as nonapportionable income. The transactional test is used under MTC rules to determine when dispositions of real property are classified as apportionable or nonapportionable. Your Company Inc. leased its old corporate headquarters to Unrelated Company under a 5-year lease when it no longer needed the building. At the end of the lease period, the company sold the building. The gain related to this sale is apportionable income. Exam Question 25 Which of the following is not a protected activity by PL 86-272? A Holding sales meetings in hotels Recruiting and training sales representatives C Regularly replacing stale products D Storing promotional materials and display racks Exam Question 26 The MTC does not identify which of the following as a protected in-state activity under PL 86-272? A Evaluation, training, and recruitment of sales personnel to conduct protected activities B Providing any kind of technical assistance or service C D Provision of automobiles for sales personnel to conduct protected activities Solicitation of orders by an in-state resident employee or representative as long as no place of business is maintained in the state other than an in-home office Exam Question 27 Which of the following activities is not protected by PL 86-272? A Collecting funds B General advertising C Holding sales meetings in a salesperson's home D Setting up display racks Exam Question 28 Which of the following activities does PL 86-272 protect? A C Activities that are not ancillary to the solicitation process and not de minimis in the aggregate Handling occasional credit disputes The company maintaining a sales office in a state where inventory is stored D Renting tangible personal property Exam Question 29 Which of the following is a false statement? A B C D All states require 80% ownership before a group can file a single return. In a separate-return state, it is possible for one affiliate to report income on operations in the state while another has an operating loss. Many states will require all members of a consolidated state-level return to have nexus with the state Some states may permit a combined or consolidated return only if the companies form a unitary business, Exam Question 30 Which of the following is a true statement? A B C D A unitary state will always collect more tax than a separate-return state. One of the advantages of separate reporting is that it maximizes the use of the operating losses. If a state offers both domestic and worldwide combination, a corporation must affirmatively elect to file on a domestic combination basis; otherwise, it must file on a worldwide combination basis. Unitary combination and nexus consolidation are the same thing. Exam Question 31 Which of the following is not an indicator of a unitary business? A Centralization of management B Functional integration of companies C Presence of economies of scale D State of incorporation for related companies Exam Question 32 Which of the following statements is false? A B C D A post-apportionment consolidated return allows affiliated companies to file a consolidated return whereby the companies each compute their state taxable income on a separate basis, and then consolidate the taxable income and losses of all of those companies into a single return. A state may prevent a group of operationally independent companies with common ownership from filing a consolidated return if the companies do not form a unitary business. An advantage of separate reporting is that it allows optimal utilization of the group's net operating losses. In a post-apportionment nexus consolidation if one of the companies has a loss from operations, the income from one company could be netted against the loss of the other before the tax rate was applied. Which of the following is a true statement? A B C D A direct pay permit may be issued if it is easy at the time of purchase to determine whether the property will be taxable or exempt. In most states, the state may proceed to collect the sales or use tax against a vendor that is not engaged in business in the state. One advantage of sales and use taxes is that they are transaction-oriented taxes. Since a privilege tax is imposed directly on the seller for the privilege of engaging in the activity of selling within the state, it cannot be shifted to the consumer. Exam Question 34 Which of the following is a true statement? A B C D A use tax is applied to purchases made outside the state but used within the state. The statute of limitations for assessing sales tax cannot be extended. Under a consumer tax format, the purchaser is primarily responsible, and liable, for paying the tax to the state. Under the privilege tax format of the sales tax, the tax must be clearly added to the purchase price. Exam Question 35 Which of the following is a false statement? A B In most states, the state may proceed to collect the sales or use tax against either the purchaser or vendor if the vendor is engaged in business in the state. The revenue generated by sales and use taxes is highly sensitive to the amount of taxable income generated by the entity paying the tax. C D The statute of limitations for assessing sales taxes generally follows the federal rules for income taxes; but the state may extend the statute of limitations for cases of fraud and failure to file a return. The use tax generally is imposed upon the first taxable use within a taxing jurisdiction. Exam Question 36 Which of the following is a true statement? A B C D A taxpayer with a direct pay permit will not have to pay sales taxes at the time of purchase, or later. Fifty states assess a sales tax. States can force any seller to collect sales taxes on its behalf. The vendor who is cauglit under-collecting sales taxes may be solely responsible for any related penalties and Exam Question 37 Which statement regarding collection and payment of sales tax is correct? A B C D All sales generally are not presumed to be taxable sales at retail, unless the seller can prove otherwise. Buying goods in a state with a lower sales tax for use in your own state is one way to save on taxes. If a seller is audited and found to have under-collected taxes, the state will use his customer list to attempt to collect taxes from the consumers, and sellers rarely lose money when they are caught under-collecting taxes. Some states will issue direct pay permits to the purchasers of large quantities of retail goods. Exam Question 38 Which of the following is a false statement? A B C D E-commerce can be between two businesses (e business) or between a business and a customer. An electronic commerce merchant with nexus in the state is obligated to collect sales tax for the state. Income tax nexus always requires a physical presence in the state. Public Law 86-272 protects against income taxes on sales of tangible property. Which of the following is most likely to be a false statement? A B C D A remote seller with a permanent establishment in the United States will file a federal income tax return and state income tax returns wherever it has nexus. Garry bought a jacket from a web site. The company does not have a physical presence in Garry's state. None of the states with a sales tax will expect the seller to collect sales or use tax on the purchase. Electronic commerce (e-commerce) is business that is conducted over the Internet using any of the applications that rely on the Internet, such as e-mail and web sites. Many states have tried to clarify when e-commerce will create nexus. Exam Question 40 Which of the following is most likely to be a true statement? A B C D California takes the position that if the bricks and mortar affiliate offers coupons on behalf of the internet affiliate, that action constitutes the type of selling activity consistent with the internet affiliate being engaged in business in the state. Each electronic commerce transaction is subject to sales and use taxes. If the bricks and mortar affiliate helps to establish and maintain a market for the internet affiliate, nexus will not be attributed to the internet company. Remote sellers cannot manage or avoid the need to collect sales tax. Exam Question 41 Which of the following is a true statement concerning tax rates under the Streamlined Sales and Use Tax Agreement (SSUTA)? A All local jurisdictions are required to use the same state- level tax rate. B It applies to vending machine sales. C It establishes uniform definitions for taxable goods. D Sales or use taxes levied on heating fuels delivered by the seller must be at the state level rate. Exam Question 42 Which of the following is a true statement concerning sourcing under the Streamlined Sales and Use Tax Agreement (SSUTA)? A Different sourcing rules apply if the characterization of a product is tangible personal property B Retailers must use destination-based sourcing rules. C Sales are not sourced to the location where the purchaser receives the item. D The same sourcing rules apply to the retail sale or transfer of watercraft. Exam Question 43 Which of the following is a true statement concerning amnesty under the Streamlined Sales and Use Tax Agreement (SSUTA)? A B C D A member state cannot allow amnesty on terms and conditions more favorable to a seller than is required by the Streamlined Sales and Use Tax Agreement. A remote seller with no physical presence in a state will want to register and apply for amnesty. Amnesty applies only to uncollected or unpaid sales or use taxes. It does not include any related interest and penalty. The seller is not eligible for amnesty in a member state if the seller was registered in the member state for the 12- month period preceding the effective date of the state's participation in the SSUTA. Exam Question 44 Which of the following is a false statement concerning amnesty under the Streamlined Sales and Use Tax Agreement (SSUTA)? A Amnesty is not available for sales and use taxes already paid or remitted to a state or to taxes collected by a seller. B C Each state is encouraged, but not required, to offer an amnesty when they become a member. The amnesty will be granted regardless of "nexus" of the seller if all other requirements are met. Exam Question 45 Which of the following is a true statement? A B C D After the Wayfair decision, states cannot require remote sellers with no physical presence in a state, to collect sales and use taxes. Congress could pass legislation that would clarify when sales and use taxes need to be collected. All of the states that have a sales tax are full members of the Streamlined Sales and Use Tax Project. The Wayfair decision established a clear definition for when substantial nexus occurs when there is no physical presence in the state