APP Tax Planning & Compliance 2 — Questions and Answers
Question 1: When a company purchases goods from a foreign vendor and imports them into the US, which tax is typically assessed at the point of entry?
- Value-added tax (VAT)
- Customs duty (tariff) (Correct answer)
- Sales and use tax
- Excise tax
Correct answer: Customs duty (tariff)
Customs duties (tariffs) are federal taxes assessed on imported goods at the US border, administered by US Customs and Border Protection.
Question 2: A purchasing professional receives a W-9 form from a new domestic vendor. What is the primary purpose of this form?
- To verify the vendor's business license
- To collect the vendor's taxpayer identification number for 1099 reporting (Correct answer)
- To confirm the vendor's insurance coverage
- To establish payment terms and credit limits
Correct answer: To collect the vendor's taxpayer identification number for 1099 reporting
Form W-9 collects a vendor's name, address, and Taxpayer Identification Number (TIN), which the buyer uses to prepare 1099-MISC forms for applicable payments.
Question 3: Which of the following purchases is MOST likely exempt from state sales tax in the majority of US states?
- Office furniture for corporate headquarters
- Raw materials incorporated into manufactured products for resale (Correct answer)
- Company vehicles for executive use
- Software subscriptions for internal use
Correct answer: Raw materials incorporated into manufactured products for resale
Most US states exempt raw materials that become part of a product manufactured for resale under a resale or manufacturing exemption.
Question 4: An organization purchases equipment in State A but uses it primarily in State B. Which state has the right to collect use tax?
- State A, because that is where the purchase occurred
- State B, because that is where the property is used (Correct answer)
- Both states may collect tax proportionally
- Neither state can collect tax on interstate commerce
Correct answer: State B, because that is where the property is used
Use tax is imposed by the state where tangible personal property is stored, used, or consumed, not necessarily where it was purchased.
Question 5: What is the term for the process by which a company tracks and manages its tax obligations across multiple jurisdictions to avoid over- or under-payment?
- Tax arbitrage
- Tax nexus mapping
- Tax compliance management (Correct answer)
- Transfer pricing
Correct answer: Tax compliance management
Tax compliance management involves systematically tracking obligations, filing deadlines, and payments across all relevant tax jurisdictions to ensure accuracy and timeliness.
Question 6: Under IRS rules, when must a company issue a 1099-NEC to an unincorporated vendor for services rendered?
- When total payments to the vendor reach $500 in a calendar year
- When total payments to the vendor reach $600 in a calendar year (Correct answer)
- When total payments to the vendor reach $1,000 in a calendar year
- When total payments to the vendor reach $2,500 in a calendar year
Correct answer: When total payments to the vendor reach $600 in a calendar year
The IRS requires a 1099-NEC to be issued when total payments for services to an unincorporated vendor (sole proprietor, partnership, LLC) equal or exceed $600 in a calendar year.
Question 7: Which document should a purchasing department obtain from a vendor claiming a sales tax exemption based on their resale status?
- IRS Form 8283
- A valid resale certificate or exemption certificate (Correct answer)
- A Certificate of Origin
- Form W-8BEN
Correct answer: A valid resale certificate or exemption certificate
A resale or exemption certificate issued by the vendor proves they intend to resell the goods and shifts sales tax liability from buyer to seller.
APP Tax Planning & Compliance 2
When a company purchases goods from a foreign vendor and imports them into the US, which tax is typically assessed at the point of entry?