You are asked to prepare a presentation entitled "Planning Principles for Our Multistate Clients" for colleagues in the corporate tax department. The company already work with clients operating in at least $15$ states.

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a$.$Answer the following questions in order to prepare for the presentation.

When the manufacturing operation is located in a high$-$tax state, the establishment of a distribution center in a low$-$ or no$-$tax state increases the overall state tax liability.

TrueFalse

A corporation may benefit by storing inventory in a low$-$ or no$-$tax state because the average property value in the state in which the manufacturing operation is located is reduced significantly.

TrueFalse

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b$.$Complete the general draft of the requested outlined.

A general outline for the presentation follows:

Planning Principles for Our Multistate Clients

I.Select optimal states in which to operate$$A$.$Put

lossesprofits

into high$-$tax states$$B$.$Put

lossesprofits

into no$-$ and low$-$tax statesII.Nexus$$A$.$If a company provides company$-$owned iPads to sales reps, they could

avoidestablish

nexus in a particular by reimbursing them for equipment purchases.$$B$.$Creating nexus in a

no$-$ or low$-$taxhigh$-$tax

is a good thing.III.Investment subsidiaries$$A$.$The creation of a passive investment company is a technique utilized to

minimizemaximizepostpone

a corporation's state tax burden.$$B$.$The tax savings can be realized by forming a passive investment company to hold the intangible assets and to handle the corporation's investment activities.$$C$.$These desired results, however, are not fully available in states that view the entire corporate operation as being

allocatedapportionedunitary

$.$D$.$The

GeoffreyIRSNorth Carolina

decision came as a surprise to many tax advisers, and the rule now limits some of the planning opportunities formerly available.IV$.$Apportionment factor planning$$A$.$Sales factor: Shipping method: In determining the numerator of the sales factor, most states follow the UDITPA's $"$

delivery conceptshipment origination conceptultimate destination concept

$,"$ under which tangible asset sales are assumed to take place at the point of delivery, not at the location at which the shipment originates.

Record keeping: The corporation's overall state tax possibly can be reduced by establishing a better record$-$keeping system.$$B$.$Property factor: Leases: Typically,

insufficientsufficient

nexus is present when a corporation derives income from sources within the state, owns or leases property in the state, employs personnel in the state, or has physical or financial capital there.

Idle property: Idle property, property under construction, and property that is used in producing nonapportionable income generally are

excludedincluded

$.$C$.$Payroll factor: Can the corporation relocate

allhighly paid

employees to low$-$ or no$-$tax states?

Commissions paid to independent contractors are

excludedincluded

from the payroll factor.