CPA Quiz: Evaluate Apportionment And Nexus Issues

What this quiz covers

This quiz focuses on Evaluate Apportionment And Nexus Issues, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Only taxes businesses that have employees physically located in the state.
2. Apportions income based solely on the ratio of the taxpayer's payroll in the state to total payroll.
3. Apportions income equally among all states where the business operates.
4. Apportions income based solely on the ratio of the taxpayer's sales attributable to the state to the taxpayer's total sales everywhere - this rewards businesses that create jobs and property in the state but sell elsewhere. (correct answer)

Question 2

1. The taxpayer's sales sourced to the state divided by the taxpayer's total sales everywhere. (correct answer)
2. The taxpayer's in-state sales minus returns and allowances.
3. The average of the taxpayer's beginning and ending in-state accounts receivable.
4. The ratio of in-state customers to total customers.

Question 3

1. The state where the service provider's employees physically performed the service.
2. The state where the service provider's headquarters are located.
3. The state where the customer received the benefit of the service - regardless of where the service was performed. (correct answer)
4. The state with the highest income tax rate where the taxpayer has nexus.

Question 4

1. A taxpayer's income in a state decreases year over year.
2. A taxpayer has nexus in every state where it makes sales.
3. A taxpayer's property factor exceeds its payroll factor.
4. A sale is 'thrown back' to the state of origin (where the goods are shipped from) when the destination state has no jurisdiction to tax the seller - preventing some sales from falling out of all state apportionment formulas. (correct answer)

Question 5

1. Advertising in a state through national publications or broadcast media.
2. Billing customers located in the state.
3. Having employees, independent contractors, property, or inventory in the state - any physical connection may create nexus for income tax purposes beyond P.L. 86-272 protections. (correct answer)
4. Holding a bank account in the state.

Question 6

1. A functional integration, centralization of management, and economies of scale among the entities - factors indicating they operate as a single enterprise rather than independent businesses. (correct answer)
2. Ownership of more than 50% of each subsidiary's stock.
3. Filing a combined return in every state where any member has nexus.
4. All group members to be incorporated in the same state.

Question 7

1. Property/3 + Payroll/3 + Sales/3.
2. Property/3 + Payroll/3 + 2 x Sales/3.
3. (Property factor + Payroll factor + 2 × Sales factor) / 4. (correct answer)
4. Property × 1/3 + Sales × 2/3.

Question 8

1. The buyer pays from a bank account located in that state.
2. The transaction is negotiated by a salesperson located in that state.
3. The invoice is generated in that state.
4. The product is delivered or the service benefit is received in that state - under destination-based sourcing rules (most common), the sales factor reflects where customers receive goods or services. (correct answer)

Question 9

1. States typically start with federal taxable income and make state-specific additions and subtractions - some states conform to federal law (IRC conformity) while others have their own definitions of taxable income. (correct answer)
2. State taxable income always equals federal taxable income.
3. States use GAAP net income as the starting point for state taxable income.
4. Federal and state taxable income are determined independently with no relationship.

Question 10

1. A seller exceeds a state's economic nexus threshold, commonly $100,000 in sales or 200 transactions in the state - physical presence is no longer required. (correct answer)
2. A seller has at least one employee physically working in the state.
3. A seller's nationwide revenue exceeds $1 million.
4. A seller advertises its products in the state through any medium.

Question 11

1. 20% - calculated as (20% property + 20% payroll + 20% sales) / 3 = 20%. (correct answer)
2. 25% - calculated as average of (20%, 20%, 30%).
3. 30% - calculated using only the sales factor.
4. 23.3% - calculated as (20% + 20% + 30%) / 3.

Question 12

1. The apportionment formula used to allocate income among states.
2. The minimum amount of income a business must earn in a state before filing is required.
3. The treaty between states governing reciprocal tax treatment of multistate businesses.
4. The sufficient connection between a business and a state that subjects the business to that state's taxing jurisdiction - the threshold requirement that must be met before a state can impose its income tax. (correct answer)

Question 13

1. Having a website that allows customers to browse products.
2. Accepting orders through an online portal.
3. Sending promotional emails to customers in the state.
4. Providing post-sale support through online chat, cookies that adjust content based on user preferences, or other interactive digital activities that go beyond mere order solicitation. (correct answer)

Question 14

1. The taxpayer earns income from investments in federal treasury securities.
2. The taxpayer makes sales to customers in states where it lacks nexus and the shipping state does not have a throwback rule - those sales fall out of all apportionment formulas. (correct answer)
3. The taxpayer operates in states with no income tax.
4. The taxpayer earns capital gains that no state claims the right to tax.

Question 15

1. Is incorporated in a state other than where it conducts business.
2. Has less than $1 million in sales in a state.
3. Limits its in-state activities to solicitation of orders for tangible personal property that are approved and shipped from outside the state. (correct answer)
4. Has no employees physically present in the state.

Question 16

1. The corporation's worldwide income multiplied by the number of states divided by 5.
2. The corporation's taxable income multiplied by a fraction - (in-state property/total property + in-state payroll/total payroll + in-state sales/total sales) / 3. (correct answer)
3. The sum of all income earned from customers located in State X.
4. The corporation's income multiplied by the percentage of days employees worked in State X.

Question 17

1. Each member of a corporate group to file separate state returns reporting only their own income.
2. All members of an affiliated group to file one combined state return based on federal consolidated taxable income.
3. Only the parent corporation to report all income of subsidiaries.
4. Members of a unitary business group to combine their income and factors into a single apportionment calculation - eliminating intercompany transactions and income shifting within the unitary group. (correct answer)

Question 18

1. A business exceeds a state's statutory or regulatory economic presence threshold - common thresholds include $50,000 to $500,000 of in-state sales or revenue, even without physical presence. (correct answer)
2. A business has any customers located in the state.
3. A business earns at least 10% of its total revenue from in-state customers.
4. A business is registered to do business in the state.

Question 19

1. The state where the company's servers hosting the software are located.
2. The state where the customer uses (receives the benefit of) the software - typically the customer's location. (correct answer)
3. The state where the software was developed.
4. Equally allocated among all states where the company has nexus.

Question 20

1. Earned by employees physically located in the state.
2. Received from customers with billing addresses in the state.
3. Attributable to assets located in the state.
4. Fairly apportioned to the state through a constitutionally permissible apportionment formula that reflects the business activity in the state - the U.S. Constitution requires that state taxation be fairly apportioned and not discriminatory. (correct answer)