Question

To maintain exempt status, an organization must do which of the following:

A. Satisfy only an organizational test.

B. Satisfy only an operational test.

C. Satisfy both an organizational test and an operational test.

D. Satisfy a financial test.

E. Once exempt status is granted, it will continue regardless of whether the organizational test and the operational test are satisfied.

In determining state taxable income, all of the following are adjustments to Federal income except:

	A.	A Federal net operating loss.
	B.	Federal income tax expense.
	C.	Dividends received from other U.S. corporations.
	D.	Wages paid to officers and executives.

Under P.L. 86-272, which of the following transactions by itself would create nexus with a state?

	A.	Inspection by a sales employee of the customer’s inventory for specific product lines.
	B.	Using an independent contractor who acts as a manufacturer’s representative for the taxpayer through a sales office in the state.
	C.	Executing a sales campaign, using an advertising agency acting as an independent contractor for the taxpayer.
	D.	Maintenance of inventory in the state by an independent contractor under a consignment plan.

In conducting multistate tax planning, the taxpayer should:

	A.	Review tax opportunities in light of their effect on the overall business.
	B.	Exploit inconsistencies among the taxing statutes and formulas of the states.
	C.	Consider the tax effects of the plan after accounting for any new compliance and administrative costs that it generates.
	D.	All of the above are true.

For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction?

	A.	Payroll.
	B.	Property.
	C.	Unitary.
	D.	Sales (gross receipts).

Answer 1

In order to maintain the exempt status an organization must satisfy both an organizational test and operational test. Thus, option C is the right answer.

In determining the state taxable income Federal income tax expense is not required to be adjusted to Federal income. Thus, option B is the correct answer here.

Executing a sales campaign by using advertisement agency that acts as an independent contractor for the tax payer would create nexus with a state. This is because the advertisement campaign is used to improve the sales. Hence, option C is the correct option.

In conducting multi state tax planning, the tax payer should review the tax opportunities in light of entire business; exploit the tax statues and inconsistencies in these statues and formulas. Thus, all the options are true hence, correct answer is option D.   

Gross receipts or sales is the traditional apportionment factor that yields the greatest opportunity for tax payers to reduce their taxes. Thus, option D is the correct answer.