CTC State & Local Tax (SALT) Flashcards

Which of the following items is typically exempt from sales tax in most U.S. states?

Answer: Prescription drugs

Prescription drugs are exempt from sales tax in the vast majority of states as a matter of public health policy.

What is a 'combined reporting' requirement in state corporate income taxation?

Answer: Filing a single return for all affiliated entities with commonly controlled income

Combined reporting requires affiliated corporations under common ownership to report their income as a single entity to prevent profit-shifting to low-tax states.

What is the purpose of a 'throwback rule' in state income tax apportionment?

Answer: To assign sales to a taxpayer's home state when the destination state cannot tax the income

The throwback rule assigns out-of-state sales back to the seller's state when the seller lacks nexus in the destination state, preventing 'nowhere income.'

Which of the following best describes a 'voluntary disclosure agreement' (VDA) in the SALT context?

Answer: A program allowing taxpayers to come forward and pay back taxes with reduced penalties

A VDA allows a taxpayer with prior unfiled obligations to come forward voluntarily and settle back taxes, typically with reduced or waived penalties and a limited lookback period.

What is the 'Multistate Tax Compact' and its significance for state taxation?

Answer: An interstate agreement promoting uniformity in state tax laws and allowing the three-factor apportionment election

The Multistate Tax Compact is an interstate agreement that promotes uniformity in state tax laws and historically allowed taxpayers to elect the three-factor apportionment formula.

Under what concept does a state assert the right to tax income earned by a nonresident individual who was formerly domiciled there?

Answer: Domicile-based continuing taxation

Some states apply domicile-based continuing taxation, asserting taxing rights over former residents for income sourced to the state or tied to their prior domicile.