CTC CTC State & Local Tax (SALT) 2

Question 1

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

Accepted Answer

Prescription drugs

Answer

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

Question 2

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

Accepted Answer

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

Answer

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

Question 3

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

Accepted Answer

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

Answer

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.'

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC CTC State & Local Tax (SALT) 2