LO.2 Sales representative Jones is based in Utah, where the operating plants and
ID: 2434400 • Letter: L
Question
LO.2 Sales representative Jones is based in Utah, where the operating plants and corporate headquarters of her employer also are located. She visits customers in Colorado for a day, soliciting orders for the seashells that she sells. The orders are approved in Utah, and the shells are shipped from Oregon within a week. Are these sales subject to the Colorado corporate income tax?Question 12
LO.6 About 20 states apply a unitary system of business income taxation.
a. Explain why these states are attracted to the unitary theory and a combined reporting scheme of multistate income taxation.
b. Is the application of the unitary theory a help or a detriment to the taxpayer?
Explanation / Answer
LO.2 No, The sales are not subject to the Colorado corporate income tax. Why?One way that corporations try to avoid the added expense of paying state income taxes is by shipping products to customers located out of state. By shipping purchase products to customers that reside or do business in another state, the corporation can sometimes effectively eliminate paying some income taxes to the state where the shipment originated. Most states only charge income tax or levy sales taxes on items that were bought and sold inside that particular state. While there are exceptions to this rule, it is a common practice of corporations to avoid many local taxes by shipping products out of their home state. However, regardless of state or local income or sales taxes that may be avoided by using this method, it offers no protection at all from federal income tax liability for the corporation. LO.6 a.Despite the complexity surrounding the unitary concept, most states do not provide clear guidelines as to when or how the unitary business concept should be applied. States typically attempt to use the unitary business concept to increase taxable income. Not surprisingly, states often also try to deny the use of unitary business concept when its application decreases taxable income.
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