CTC CTC State & Local Tax (SALT)

Question 1

What is 'nexus' in the context of state and local taxation?

Accepted Answer

A sufficient connection between a business and a state that creates a tax obligation

Answer

Nexus is the legally sufficient connection between a taxpayer and a state that gives the state the authority to impose a tax obligation.

Question 2

Under the Supreme Court's South Dakota v. Wayfair (2018) decision, what threshold did South Dakota use to establish economic nexus for sales tax?

Accepted Answer

$100,000 in sales or 200 transactions

Answer

South Dakota's economic nexus law — upheld by the Supreme Court — was triggered by $100,000 in sales or 200 separate transactions into the state.

Question 3

Which method is most commonly used by states to apportion multistate corporate income to their state?

Accepted Answer

Single-factor sales formula

Answer

While the traditional three-factor formula was once standard, most states have shifted to a single-factor sales (receipts) apportionment formula.

Question 4

What is 'use tax' and when does it typically apply?

Accepted Answer

A complementary tax owed when sales tax was not collected by the seller

Answer

Use tax is a self-assessed tax owed by the buyer on taxable purchases where the seller did not collect sales tax, such as out-of-state online purchases.

Question 5

Which Public Law limits states from taxing the income of a business whose only in-state activity is soliciting orders for goods shipped from outside the state?

Accepted Answer

Public Law 86-272

Answer

P.L. 86-272 protects businesses from state income tax when their only in-state activity is soliciting orders for tangible personal property fulfilled from outside the state.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC CTC State & Local Tax (SALT)