Multistate Corporate Income Taxation

1
Multistate CorporateIncome Taxation

• Presented By
• Kate Wietzema

2
Multistate Taxation

• In which states must a corporation pay income
  tax?
• How does a corporation determine taxable income?
• What are some tax planning strategies?

3
Nexus

• Economic relationship between state and taxable
  entity.
• Physical Presence Test
• Public Law 86-272
• Solicitation
• Multistate Tax Commission

4
Activities That Could Establish Nexus

• Listing the company in the telephone directory.
• Handling customer complaints by sales
  representatives.
• Repairing or maintaining companys products.
• Investigating credit worthiness.
• Installing of equipment or supervising
  installation.
• Approving or accepting orders.
• Maintaining a sample or display room over 14
  days.
• Repossessing property.
• Owning, leasing, or maintaining facilities.

5
Activities That Will NOT Establish Nexus

• Campaigns or sales activities.
• Carrying free samples only for display or
  distribution.
• Owning or furnishing automobiles to salespersons.
• Passing inquiries or complaints to the home
  office.
• Soliciting orders for sales by any type of
  advertising.
• Maintaining a display room for less than 14 days.

6
State Taxable Income
Federal taxable income /-State Addition and
subtraction modifications Income subject to
allocation and apportionment -all Nonbusiness
Income Business Income x State Apportionment
percentage Business income apportioned to state
Nonbusiness income allocated to state State
Taxable Income x State Tax Rate Tax before
Credits -State Credits Tax Liability
7
Common Addition and Subtraction Modifications

• Dividends received deduction
• State and local income taxes
• Interest earned on federal government obligations
• Interest earned on state and local government
  obligations
• Depreciation
• Expenses related to federal or state tax credits
• Net operating loss deductions
• Certain foreign items

8
State Tax Rates

• Typically less than 10 percent
• Flat Rate or Progressive
• Kansas 4 percent flat rate
• Pennsylvania 9.99 percent flat rate

9
State Credits

• Initial employment of residents of the state or
  specifically identified groups.
• Investments within economically underdeveloped
  areas.
• Research and development.
• Protection of environment.
• Purchase of resources produced within the state.
• Support of certain governmental activities.
• Handicapped-accessible structures.
• Conservation of land, fish, wildlife, or forests.

10
Tax Planning Strategies

• Know requirements for Nexus.
• Locate home offices in states that exclude
  dividends from taxable income.
• Conduct business in states with lower tax rates.
• Conduct business in states that provide
  incentives.