Chapter 23 State and Local Taxes

[LO 1] Why do states and local jurisdictions assess taxes?

[LO 1] Compare and contrast the relative importance of judicial
law to state and local and federal tax law.

[LO 1] Describe briefly the nexus concept and explain its
importance to state and local taxation.

[LO 1] What is the
difference, if any, between the state of a business’s commercial domicile
and its state of incorporation?

[LO 1] What types of property sales are subject to a sales tax
and why might a state choose to exclude the sales of certain types of
property?

[LO 1] In what circumstances would a business be subject to
income taxes in more than one state?

[LO 1] Describe how the
failure to collect sales tax can result in a larger tax liability for a
business than failing to pay income taxes.

[LO 2] Discuss reasons why restaurant meals, rental cars, and
hotel receipts are often taxed at a higher rate than the average sales tax
rate.

[LO 2] Compare and contrast the difference between general
sales tax nexus and the new “Amazon” rule creating nexus in New York.

[LO 2] What is the difference between a sales tax and a use
tax?

[LO 2] Renée operates Scandinavian Imports a furniture shop in
Olney, Maryland. Scandinavian
Imports ships goods to customers in all 50 states. Scandinavian Imports also appraises
antique furniture. Recently in-home
appraisals have been done in the District of Columbia, Maryland,
Pennsylvania, and Virginia. Online
appraisals have been done for customers in California, Minnesota, New
Mexico, and Texas. Determine where
Scandinavian Imports has sales and use tax nexus.

[LO 2] Web Music, located in Gardnerville, Nevada, is a new
online music service that allows inexpensive legal music downloads. Web Music prides itself in the fact that
it has the fastest download times in the industry. Web Music achieved this speed by leasing
server space from 10 regional servers dispersed across the country. Discuss where Web Music has sales tax
nexus.

[LO 2] Discuss possible reasons for why the Commerce clause was
included in the U.S. Constitution.

[LO 2] Describe the administrative burden that businesses face
in collecting sales taxes.

[LO 3] Compare and contrast the rules for where domiciliary and
non-domiciliary businesses must file state income tax returns.

[LO 3] Lars operates Keep Flying, Incorporated,
a used airplane parts business, in Laramie, Wyoming. Lars employs sales agents that visit
mechanics in all 50 states to solicit orders. All orders are sent to Wyoming for
approval. All parts are shipped via
common carrier. The sales agents
are always on the lookout for wrecked, abandoned, or salvaged aircraft
with rare parts because they receive substantial bonuses for removing
these parts and shipping them to Wyoming.
Discuss the states where Keep Flying has income tax nexus.

[LO 3] Explain changes in the U.S. economy
which have caused P.L. 86-272 to become partially obsolete and provide an
example of a company that P.L. 86-272 works well for and an example of a
company that it does not work well for.

[LO 3] Climb Higher is a
distributor of high end climbing gear and is located in Paradise,
Washington. Climb Higher’s sales
personnel regularly perform the following activities in an effort to
maximize sales:

·
Carry swag (free samples) for
distribution to climbing shop employees.
·
Perform credit checks on new
customers to reduce delivery time the first time merchandise is ordered.
·
Check customer inventory for
proper display and proper quantities.
·
Accept returns of merchandise
for defective goods.

Discuss Climb
Higher’s sales activities that are protected and unprotected under the Wrigley Supreme Court decision.

[LO 3] Describe a situation where it would be
advantageous for a business to establish income tax nexus in a state.

[LO 3] States are
arguing for economic nexus; provide at least one reason for and against
the validity of economic nexus.