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Lecture Taxation of individuals and business entities 2015 - Chapter 23: State and local taxes

In this chapter, the learning objectives are: Describe the primary types of state and local taxes, determine whether a business has sales and use tax nexus and calculate its sales tax withholding responsibilities, identify whether a business has income tax nexus and determine its state income tax liabilities. | Chapter 23 State and Local Taxes Learning Objectives Describe the primary types of state and local taxes Determine whether a business has sales and use tax nexus and calculate its sales tax withholding responsibilities Identify whether a business has income tax nexus and determine its state income tax liabilities State and Local Taxes Purpose Raise revenue to finance state governments Subject to taxes if: Taxpayer’s commercial domicile State where a business is headquartered and directs operations Taxpayer has nexus Nexus is the sufficient (or minimum) connection between a business and a state that subjects the business to the state’s tax system State and Local Taxes State and Local Taxes Sales of tangible personal property are generally subject to the sales and use tax Taxable items vary from state to state Nexus Businesses create sales tax nexus when they have a physical presence in the state Business is required to collect sales tax from customers in a state . | Chapter 23 State and Local Taxes Learning Objectives Describe the primary types of state and local taxes Determine whether a business has sales and use tax nexus and calculate its sales tax withholding responsibilities Identify whether a business has income tax nexus and determine its state income tax liabilities State and Local Taxes Purpose Raise revenue to finance state governments Subject to taxes if: Taxpayer’s commercial domicile State where a business is headquartered and directs operations Taxpayer has nexus Nexus is the sufficient (or minimum) connection between a business and a state that subjects the business to the state’s tax system State and Local Taxes State and Local Taxes Sales of tangible personal property are generally subject to the sales and use tax Taxable items vary from state to state Nexus Businesses create sales tax nexus when they have a physical presence in the state Business is required to collect sales tax from customers in a state only if it has sales and use tax nexus with that state Sales and Use Taxes Businesses that establish sales and use tax nexus with a state but fail to properly collect sales tax can create significant liabilities that need to be disclosed for financial reporting purposes Sellers with nexus, collect and remit sales tax When seller doesn’t have nexus, customer is responsible for paying a use tax to the state in which the property is used Sales and Use Taxes Sales and Use Taxes: Example Kay Bailey Corporation is a Texas corporation engaged in the business of selling rare books. The only activity that Kay Corporation performs in New Mexico is the solicitation of sales through independent agents who visit residents of New Mexico to sell the company’s products. Does Kay have New Mexico sales and use tax nexus? Sales and Use Taxes: Example Perry Corporation is a Texas corporation principally engaged in the sale of fly fishing equipment. Perry’s only activity in Colorado is the .