ExpertHard1 markMultiple Choice
CPA · Question 71 · Area V: Entity Taxation
Which of the following creates 'nexus' for state income tax purposes under Public Law 86-272?
Which of the following creates 'nexus' for state income tax purposes under Public Law 86-272?
Answer options:
A.
Solicitation of orders for tangible personal property, approved and shipped from outside the state.
B.
Delivery of goods by common carrier.
C.
Providing installation and repair services for the goods sold.
D.
Advertising in the state.
How to approach this question
PL 86-272 protects ONLY 'solicitation' for 'tangible goods'. Services (installation/repair) destroy protection.
Full Answer
C.Providing installation and repair services for the goods sold.✓ Correct
Public Law 86-272 prohibits states from imposing income tax if the company's ONLY activity is the solicitation of orders for tangible personal property, which are sent outside the state for approval and fulfillment. Providing services (installation, repair, maintenance) exceeds 'solicitation' and creates nexus, making the company subject to state income tax.
Common mistakes
Thinking installation is incidental (it destroys PL 86-272 protection).
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