CTC State & Local Tax (SALT) Flashcards

A corporation has property, payroll, and sales in State X. State X uses a single-factor sales formula. If 40% of the corporation's total sales are in State X, what percentage of its income is apportioned to State X?

Answer: 40%

Under a single-factor sales formula, the apportionment percentage equals the in-state sales fraction, so 40% of sales in State X means 40% of income is apportioned there.

Which federal law governs the imposition of state and local taxes on sales of interstate telecommunications services?

Answer: The Mobile Telecommunications Sourcing Act

The Mobile Telecommunications Sourcing Act (MTSA) provides that mobile telecom services are sourced (and taxed) based on the customer's 'place of primary use,' typically their home or business address.

What is 'market-based sourcing' for services in state income tax apportionment?

Answer: Sourcing service income to where the customer receives the benefit

Market-based sourcing assigns service revenue to the state where the customer receives or benefits from the service, rather than where it is performed.

A retail business has nexus in Texas (no income tax) but ships goods to customers in California. Which SALT issue is most immediately relevant?

Answer: California franchise tax nexus and sales tax collection obligations

Shipping into California triggers both potential income/franchise tax nexus (if thresholds are met) and a sales tax collection obligation under California's economic nexus rules.

What is 'transfer pricing' in the state tax context and why do states scrutinize it?

Answer: The pricing of intercompany transactions used to shift income to lower-tax jurisdictions

Transfer pricing involves setting prices for transactions between related entities; states scrutinize these arrangements because they can be used to shift income out of high-tax states.

Which of the following best describes a 'resident credit' in state individual income taxation?

Answer: A credit a resident state grants for taxes paid to another state on the same income

A resident credit prevents double taxation by allowing a taxpayer's home state to credit the income taxes paid to another state on the same income.