Multistate Income Tax

Solutions

Chapter 1

Knowledge check solutions

1. 1. Incorrect. Volatility and complexity in defining nexus continues to grow as each state independently works on increasing its tax base.
   2. Incorrect. Nexus issues are becoming increasingly complex.
   3. Correct. States are using nexus as the means of increasing tax collections by finding the merest connections give rise to tax obligations.
   4. Incorrect. Nexus volatility has not stopped and has only increased in light of most states’ attempts to increase their tax base.
2. 1. Correct. Satisfying the federal due process and commerce clauses are at the base of any state’s claim of nexus.
   2. Incorrect. State laws defining nexus and imposing taxes are effective only if they do not exceed the bounds of the due process and commerce clauses of the U.S. Constitution.
   3. Incorrect. Local taxing authorities must follow the bounds of the due process and commerce clauses of the U.S. Constitution.
   4. Incorrect. The U.S. Constitution has commerce clauses that give the right to impose tax on out-of-state business.
3. 1. Incorrect. Due process requires rational relationships and the commerce clause requires fair apportionment.
   2. Incorrect. The commerce clause imposes much more stringent requirements for state taxation of interstate commerce, in order to ensure that no state is imposing a burden on interstate commerce. Satisfying the due process clause’s “minimal contacts” definition of nexus does not suffice for purposes of the commerce clause.
   3. Correct. Due process is satisfied ...