Question

XYZ Corporation, is a calendar year taxpayer that manufacturers equipment for businesses in Arizona, Kansas, and Oklahoma. The Company headquarters are located in Arizona, but a number of the employees travel to Colorado to solicit sales from potential customers. After products are delivered to customers in Colorado, XYZ sends employees to install the products and conduct training. Does XYZ have income tax nexus in Colorado? Explain the concept of nexus to the CFO, Danny Client, using the information from Public Law 86-272.
Additionally, explain the general concepts of apportionment and allocations along with the results from Part 2 of this assignment with regard to the financial impact to XYZ Corporation for conducting business in multiple states.

Answer 1

Answer:

Public Law 86 - 272:

Public Law 86 – 272 has launched in the year 1959. Back till date it prohibiting imposition to pay income tax on out of state company with state activates that are limited to solicitation of order for sales and delivery of product.

The whole cruse  of PL 86 – 272 revolve around delivery of goods the term delivery has been left up to the state, many of them which have narrowed the definition either through rules and regulation.

Although it is to be noted that PL 86 – 272, restricts only income tax in terms where more delivery is taken place. It does not restrict other states taxes.

In the case of XYZ corporation, being a company with headquarters in Arizona, company travel its employees to different sections for solicit sales, delivery and training. In this case, the first two functions are with in limit of PL 86 – 272 (sales solution and delivery) but the third on training is a separate function which is outside the scope of PL 86 – 27.

In this case, the restriction of PL 86 – 272 does not applies on XYZ Corporation as it also undertake delivery in the state.

Thus, the training required the company to the state income tax.

On deciding what amount of income, in the above case is liable to the income tax, we have to understand it with the concept of appointment and allocation.  

In appointment and allocation states that much activates which is directly related to the state, should be allocate to state and if we separate consideration is charged, then a portion should be apportioned to state.

If XYZ charges consideration for training and delivery, then the consideration is liable to state income tax a per allocation concept, and if we separate consideration is charged the same is apportioned on a general basis.  

The company ends up paying taxes only on activates which are carried out in the state and not on whole production.