STATE AND LOCAL TAX - RESEARCH MEMO OPTION 1 Happy Hippos (HH) is a manufacturer and retailer of New England crafts

STATE AND LOCAL TAX - RESEARCH MEMO OPTION 1 Happy Hippos (HH) is a manufacturer and retailer of New England crafts

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STATE AND LOCAL TAX - RESEARCH MEMO OPTION 1 Happy Hippos (HH) is a manufacturer and retailer of New England crafts.

STATE AND LOCAL TAX – RESEARCH MEMO OPTION 1

Happy Hippos (HH) is a manufacturer and retailer of New England crafts. HH is headquartered in Camden, Maine. HH provides services has sales, employees, property, and commercial domicile as follows:

 

Happy Hippos In-State Activities

State

Sales

Employees

Property

Services

Commercial Domicile

Connecticut

ü

ü

 

ü

 

Maine

ü

ü

ü

ü

ü

Massachusetts

ü

ü

     

New Hampshire

ü

       

Rhode Island

ü

ü

     

V ermont

ü

ü

ü

ü

 

Happy Hippos sales of goods and services by state are as follows:

 

Happy Hippos Sales

State

Goods

Services

Total

Connecticut

$78,231

$52,321

$130,552

Maine

292,813

81,313

374,126

Massachusetts

90,238

 

90,238

New Hampshire

129,322

 

129,322

Rhode Island

98,313

 

98,313

V ermont

123,914

23,942

147,856

Totals

$812,831

$157,576

$970,407

HH has federal taxable income of $282,487 for the current year. Included in federal taxable income are the following income and deductions:

  • $12,000 of Vermont rental income;

  • City of Orono, Maine bond interest of $10,000;

  • $10,000 of dividends;

  • $2,498 of state tax refund included in income;

  • $32,084 of state net income tax expense; and

  • $59,234 of federal depreciation.

  • Maine state depreciation for the year was $47,923 and Maine doesn’t allow deductions

    for state net income taxes.

    The employees present in Connecticut, Massachusetts, and Rhode Island are sales people who perform only activities protected by Public Law 86-272.

    Each of the states is a separate-return state. HH’s payroll is as follows:

Payroll

 

State

Wages

Connecticut

$94,231

Maine

392,195

Massachusetts

167,265

Rhode Island

92,391

V ermont

193,923

Total

$940,005

HH’s property is as follows:

Property

State

Beginning

Ending

Rented

Maine

$938,234

$937,652

 

V ermont

329,134

428,142

$12,000

Total

$1,267,368

$1,365,794

$12,000

  1. a)  Determine the states in which HH has sales and use tax nexus.

  2. b)  Calculate the sales tax HH must remit assuming the following sales tax rates:

    Connecticut (6%), Maine (8%), Massachusetts (7%), New Hampshire (8.5%), Rhode

    Island (5%), and Vermont (9%).

  3. c)  Determine the states in which HH has income tax nexus.

  4. d)  Determine HH’s state tax base for Maine assuming federal taxable income of

    $282,487.

  5. e)  Calculate business and non-business income.

  6. f)  Determine HH’s Maine apportionment factors using the three-factor method (assume

    that Maine is a throwback state).

  7. g)  Calculate HH’s business income apportioned to Maine.

  8. h)  Determine HH’s allocation of non-business income to Maine.

  9. i)  Determine HH’s Maine taxable income.

  10. j)  Calculate HH’s Maine net income tax liability assuming a Maine tax rate of 5

    percent.

INTERNATIONAL TAX – RESEARCH MEMO OPTION 2

USCo, a U.S. corporation, has decided to set up a headquarters subsidiary in Europe. Management has narrowed its location choice to either Spain, or Ireland, or Switzerland. The company has asked you to research some of the income tax implications of setting up a corporation in these three countries. In particular, management wants to know what tax rate will be imposed on corporate income earned in the country and the withholding rates applied to interest, dividends, and royalty payments from the subsidiary to the USCo.

To answer the tax rate question, consult KPMG's Corporate and Indirect Tax Survey 2014, which you can access at http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/corporate- indirect-tax-rate-survey-2014.pdf. To answer the withholding tax questions, consult the treaties between the United States and Spain, Ireland, and Switzerland, which you can access at www.irs.gov (type in “treaties” as your search word). 


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