Question: ABC Corp, based in State O, sells specialized industrial cleaning equipment and digital maintenance manuals through its own website and through XYZ Marketplace. ABC Corp had the following sales in State M during 2024: Q1-2024: $40,000 through its website, including: $15,000 to customers with State N resale certificates $8,000 in digital maintenance manuals $17,000 in equipment $20,000 through XYZ Marketplace, all equipment Q2-Q4 2024: $35,000 through its website, including: $15,000 to customers with State N resale certificates $12,000 in digital maintenance manuals $8,000 in equipment $30,000 through XYZ Marketplace, all equipment ABC Corp maintained a small repair facility in County X of State M until March 31, 2024, when it closed the facility. State M has enacted a 12-month "trailing nexus" provision, codified in § 58.1-612(C)(10), that establishes continued nexus for 12 months after physical presence ceases. ABC Corp also exceeded State M's economic nexus threshold ($100,000 or 200 transactions) in the previous calendar year (2023). On July 1, 2024, State M implemented a rate change, decreasing the state rate from 4.5% to 4.25% but allowing localities to increase their maximum rates from 2.5% to 3.0%. County X increased its rate from 1% to 1.5%, while City Y maintained its 2.5% rate but reduced its economic nexus threshold from $10,000 to $5,000 annual sales. State M's tax code § 58.1-609.10 provides a partial exemption for industrial cleaning equipment sold to manufacturers, reducing the taxable amount by 50%, but requires specific exemption certificates (Form ST-M) to be filed electronically within 60 days of sale. ABC Corp obtained paper certificates for transactions totaling $10,000 but filed them electronically after 75 days. Furthermore, State M's regulation § 58.1-630 classifies digital maintenance manuals as taxable digital products unless they are: Provided free with purchase of equipment, or Sold to educational institutions for classroom use, or Custom-made for a specific customer's equipment. ABC Corp's digital manuals include both standardized ($15,000 in sales) and custom versions ($5,000 in sales). The State N-State M reciprocity agreement excludes digital products unless the purchaser is registered for sales tax in State M. Three customers with State N resale certificates (representing $7,000 in sales) are registered in State M. Finally, under State M's marketplace facilitator law § 58.1-640, marketplaces must collect tax on behalf of sellers unless the seller qualifies as a "large volume specialized equipment seller" with over $5 million in annual national sales, in which case the collection responsibility remains with the seller. ABC Corp had nationwide sales of $5.2 million in 2023 but only $4.8 million in 2024. Based on the above facts, prepare a comprehensive analysis of ABC Corp's sales tax collection obligations in State M for 2024, including: The correct determination of nexus for each period The impact of physical presence and trailing nexus provisions The appropriate treatment of each sale category, considering all applicable exemptions The correct allocation of collection responsibility between ABC Corp and XYZ Marketplace The proper application of state and local tax rates for each period The consequences of late filing of exemption certificates The total tax liability for ABC Corp, including any penalties for non-compliance Cite specific statutory provisions, regulations, and case law to support your analysis.

[+0.10] For correctly identifying that ABC Corp has physical nexus in Q1 2024 and economic nexus for the entire year due to: (1) exceeding the prior year threshold and (2) current year sales of $125,000, citing South Dakota v. Wayfair and § 58.1-612(C)(10) for trailing nexus provisions [+0.10] For accurately analyzing the marketplace facilitator provisions under § 58.1-640, identifying the ambiguity in qualification period (2023 sales of $5.2M vs. 2024 sales of $4.8M) and concluding responsibility could potentially fall on either party depending on the statutory interpretation [+0.10] For correctly calculating the taxable status of the digital maintenance manuals: $15,000 in standardized manuals as taxable and $5,000 in custom manuals as exempt under § 58.1-630(3) [+0.10] For proper analysis of State N resale certificates, specifically identifying that the $7,000 in digital product sales to State M-registered purchasers qualify for exemption while other digital product sales to non-registered purchasers remain taxable despite the certificates [+0.15] For correct application of state tax rates (4.5% for Q1-Q2 and 4.25% for Q3-Q4) and accurate determination of local tax obligations, including the shift in City Y's status due to the economic nexus threshold change from $10,000 to $5,000 in July [+0.10] For proper analysis of the consequences of late-filed Form ST-M certificates, identifying the potential penalties for filing after the 60-day requirement and possible denial of the partial exemption for the $10,000 in sales [+0.10] For correctly identifying the 50% reduction in taxable amount under § 58.1-609.10 for qualifying industrial cleaning equipment sales to manufacturers (subject to certificate requirements) [+0.10] For accurate analysis of local tax sourcing rules under § 58.1-605.3, correctly applying origin-based sourcing for County X's 1% tax during the physical presence period and analyzing the impact of the rate increase to 1.5% in Q3-Q4 [+0.05] For correctly identifying that under Jefferson County v. Digital Commerce Association, local jurisdictions may establish their own economic nexus thresholds (as City Y did by reducing its threshold from $10,000 to $5,000) [+0.10] For comprehensive citation of relevant legal authorities including South Dakota v. Wayfair, National Bellas Hess, KFC Corp. v. Iowa Department of Revenue, and Avnet, Inc. v. Department of Revenue, with proper application to the facts


Question: Specialized Furnishings, Inc. (SFI) is a C-corporation headquartered in Fayetteville, Arkansas, that manufactures and sells high-end furniture. Consider the following facts for 2024: SFI maintains inventory in a bonded warehouse in Texarkana, which straddles the Arkansas-Texas border, with the warehouse physically located on the Texas side. SFI participated in a 3-month trade show in Little Rock where they: a. Displayed sample furniture (not for sale) b. Took orders for future delivery c. Provided design consultation services ($75,000 in fees) SFI sells furniture through various channels: a. Direct to Arkansas educational institutions: $450,000 (with exemption certificates) b. Through HomeStyle Marketplace (online marketplace facilitator): $1.2 million to customers in 15 states c. Via drop-shipping arrangement with Luxury Interiors (LI) where: i. LI's Louisiana customers place orders on LI's website ii. SFI ships directly to Louisiana customers from the Texarkana warehouse iii. Total: $350,000 in sales (200 transactions) SFI temporarily rented a showroom in Memphis, Tennessee during August 2024, coinciding with Tennessee's sales tax holiday for school supplies (though furniture is not exempt). They made $95,000 in sales during this period. SFI uses software designed by TaxCalc, Inc. for calculating sales tax. However, TaxCalc's database hasn't been updated to reflect recent local tax rate changes in Fort Smith, Arkansas, where SFI made $180,000 in sales. SFI sold $75,000 of furniture to Tribal Enterprises, a business owned and operated by a federally recognized Native American tribe, with delivery on tribal land in Oklahoma. SFI hosts "virtual showroom" events where Arkansas customers use VR headsets to view furniture. During these events, customers in Missouri can place orders remotely. These Missouri sales totaled $110,000 (125 transactions). Required: A) For each transaction type, determine: Which entity bears primary sales/use tax collection responsibility Which state's tax rate applies (including local rates where applicable) The proper sourcing rules that determine taxable jurisdiction B) Calculate SFI's potential sales tax liability exposure resulting from: The improperly calculated Fort Smith tax rates Any failure to properly collect on taxable transactions C) Explain how the following Arkansas-specific provisions impact SFI's obligations: Arkansas Code Ann. § 26-52-521 regarding temporary business locations Arkansas Admin. Rule GR-5(D) regarding trade shows Arkansas Code Ann. § 26-52-401(13) regarding sales to educational institutions The jurisdictional implications of the Texarkana border location under Arkansas Code Ann. § 26-52-523 D) Analyze any potential liability protection or reasonable cause arguments under Arkansas Code Ann. § 26-18-208 that might apply to SFI's reliance on the TaxCalc software. Cite all relevant statutory authorities, regulations, and case law.

[+0.05] For correctly identifying that the Texarkana warehouse creates nexus in Texas under Texas Tax Code § 151.107 while maintaining Arkansas nexus due to the Fayetteville headquarters [+0.05] For correctly determining that design consultation services at the Little Rock trade show are subject to Arkansas sales tax under Arkansas Code Ann. § 26-52-301(3)(D) as taxable services [+0.05] For correctly explaining the sales tax exemption for educational institutions under Arkansas Code Ann. § 26-52-401(13) and the requirement to maintain proper exemption certificates under Arkansas Code Ann. § 26-52-517 [+0.05] For correctly identifying HomeStyle Marketplace as the primary sales tax collection entity for marketplace sales under Arkansas Code Ann. § 26-52-111(b) and similar marketplace facilitator laws in other states [+0.05] For correctly analyzing the drop-shipping arrangement as a "sale for resale" situation where Luxury Interiors bears primary responsibility for collecting Louisiana sales tax, while identifying the potential dual jurisdiction under Texas Tax Code § 151.303 and Louisiana R.S. 47:301(10) [+0.05] For correctly determining that the temporary Tennessee showroom creates nexus under Tenn. Code Ann. § 67-6-602 and that Tennessee's sales tax holiday under Tenn. Code Ann. § 67-6-393 doesn't exempt furniture [+0.05] For correctly identifying that sales to Tribal Enterprises on tribal land are exempt from state sales tax per Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe, 498 U.S. 505 (1991) [+0.05] For correctly determining that Missouri's economic nexus threshold of $100,000 is exceeded by the virtual showroom sales ($110,000) and that destination-based sourcing applies under Arkansas Code Ann. § 26-52-304 [+0.05] For correctly calculating Fort Smith tax liability exposure based on the rate differential (e.g., if local rate increased by 0.25%, then $180,000 × 0.25% = $450) [+0.05] For correctly identifying potential penalties under Arkansas Code Ann. § 26-18-208 (5% per month, max 35%) and interest under Arkansas Code Ann. § 26-18-508 (Prime + 2%) [+0.05] For correctly calculating Missouri sales tax liability exposure (e.g., $110,000 × 8.25% = $9,075) [+0.05] For correctly calculating Tennessee sales tax liability exposure (e.g., $95,000 × 9.75% = $9,263) [+0.05] For correctly explaining that Arkansas Code Ann. § 26-52-521 establishes that temporary business locations, including the 3-month trade show, create nexus and collection obligations in Arkansas [+0.05] For correctly analyzing Arkansas Admin. Rule GR-5(D) regarding trade shows and determining that taking orders triggers collection obligations even if delivery occurs later [+0.05] For correctly explaining that Arkansas Code Ann. § 26-52-523 creates a special border city situation in Texarkana where residents may claim refunds for tax paid in excess of Texas rates [+0.05] For correctly identifying that SFI must verify each educational institution qualifies under Arkansas Code Ann. § 26-52-401(13) and maintain proper exemption certificates [+0.05] For correctly analyzing that under Arkansas Code Ann. § 26-18-208, reliance on tax calculation software might constitute reasonable cause for penalty abatement [+0.05] For correctly citing Pledger v. Baldor International, Inc., 309 Ark. 30, 827 S.W.2d 646 (1992), which established that taxpayers bear ultimate responsibility for proper tax calculation despite reliance on third-party guidance [+0.05] For correctly explaining that the Streamlined Sales Tax Agreement provisions adopted by Arkansas (Arkansas Code Ann. § 26-5-101) provide potential protection for good faith reliance on certified software [+0.05] For correctly identifying that SFI should document due diligence in selecting TaxCalc, training staff, and implementing updates to strengthen reasonable cause arguments


Question: SoftTech Solutions, Inc. is a software company incorporated in Delaware with the following presence and activities: Corporate headquarters in Austin, Texas Software development team in New Orleans, Louisiana (15 employees) Cloud servers located in data centers in Georgia, Nevada, and Oregon Sales representatives who travel to tradeshows nationwide but work remotely from their homes in 6 different states (none in Louisiana) SoftTech's product offerings include: A. Educational software platform with both: Downloadable software components Cloud-based subscription services Professional installation services Training services (both remote and in-person) B. Specialized oil and gas industry software with: Customization for Louisiana's unique mineral rights laws Integration with equipment used in offshore drilling SoftTech engages in the following transactions: Sells $180,000 of educational software downloads to Lafayette Parish School Board with installation performed by Louisiana-based subcontractor TechInstall LLC Licenses $95,000 of cloud-based educational services to Southern University (a Louisiana public university) who provides a Louisiana exemption certificate Contracts with PetroLA (a Louisiana oil company) for: $75,000 custom software integration $50,000 annual maintenance contract $30,000 staff training (conducted remotely) Drop-ships $110,000 of specialized hardware/software bundles to offshore drilling platforms located: Within Louisiana territorial waters (within 3 nautical miles of coast) In federal waters of the Outer Continental Shelf (beyond 3 nautical miles) Sells through marketplace facilitator GulfTech (registered in Louisiana) to various Louisiana customers: $60,000 of standard software downloads $45,000 of cloud subscriptions Makes sales to a Texas school district, which contracts with LouisianaTech Installers to implement the software. LouisianaTech travels to Texas to perform the implementation. Comprehensively analyze the Louisiana state and local sales/use tax implications of these transactions, addressing: SoftTech's nexus status under both physical presence and economic nexus standards The proper classification of each transaction (sale, service, or mixed transaction) The applicable tax treatment for each component under Louisiana's software and digital products provisions The impact of relevant case law including Avon Products, Inc. v. South Dakota Department of Revenue, 899 N.W.2d 277 (S.D. 2017) The effect of Act 445 of the 2022 Louisiana Legislative Session The correct tax base, rates, and local tax jurisdictions for each transaction Any available exemptions or exclusions The special rules applicable to offshore drilling platforms under both state law and federal Outer Continental Shelf Lands Act (OCSLA) Marketplace facilitator rules and dual collection responsibilities Cite all relevant Louisiana statutes, regulations, revenue rulings, and jurisprudence.

[+0.10] For correctly identifying SoftTech's physical presence nexus in Louisiana through its 15-employee software development team in New Orleans under LA R.S. 47:301(4)(b), and explaining that this creates collection obligations for both state and local taxes in all Louisiana jurisdictions per LA R.S. 47:337.10. [+0.05] For correctly calculating SoftTech's economic nexus in Louisiana (minimum $430,000 in direct sales to Louisiana customers), exceeding the $100,000 threshold established by LA R.S. 47:301(4)(m)(i). [+0.05] For correctly classifying the Lafayette Parish School Board transaction as a mixed transaction where the "true object" is the software (taxable under LA R.S. 47:301(16)(h)), but properly applying the exemption for sales to parish school boards under LA R.S. 47:301(8)(c). [+0.05] For correctly analyzing the Southern University transaction, identifying cloud-based services as "digital products" taxable under LA R.S. 47:301(16)(i) as amended by Act 445 of 2022, but exempt as a sale to a state institution under LA R.S. 47:301(8)(c). [+0.10] For correctly classifying the PetroLA transactions with proper statutory support: Custom programming ($75,000) as non-taxable professional services under LA R.S. 47:301(14)(g)(i) Maintenance contract ($50,000) as fully taxable under LA R.S. 47:301(16)(h) Staff training ($30,000) as non-taxable professional services under LA R.S. 47:301(14)(g)(i) [+0.15] For correctly analyzing the offshore platform transactions: Identifying that platforms within Louisiana territorial waters (3 nautical miles) are fully subject to Louisiana taxes per LA R.S. 49:1 Applying OCSLA (43 U.S.C. § 1333(a)(2)) to platforms in federal waters, extending Louisiana tax jurisdiction Referencing Shell Oil Co. v. Iowa Department of Revenue, 488 U.S. 19 (1988) Correctly identifying the limited exemption in LA R.S. 47:305.10 for certain offshore drilling equipment Applying principles from Avon Products, Inc. v. South Dakota Department of Revenue, 899 N.W.2d 277 (S.D. 2017) regarding the taxation of bundled physical and digital products [+0.10] For correctly analyzing the marketplace facilitator sales: Identifying GulfTech's primary collection responsibility under LA R.S. 47:340.1(C) Explaining SoftTech's relief from collection obligation under LA R.S. 47:340.1(F) Correctly noting both standard downloads and cloud subscriptions are taxable digital products under Act 445 of 2022 Explaining GulfTech's obligation to collect local taxes based on customer delivery address [+0.05] For correctly analyzing the Texas school district transaction, concluding no Louisiana sales tax applies since the customer is outside Louisiana, the services are performed outside Louisiana, and no taxable "use" occurs within Louisiana per LA R.S. 47:301(19). [+0.10] For correctly identifying the applicable tax rates and filing requirements: State rate of 4.45% (LA R.S. 47:321, 47:321.1, 47:331) Local parish rates varying by location Registration with Louisiana Department of Revenue for state taxes Registration with Louisiana Sales and Use Tax Commission for Remote Sellers for local taxes per LA R.S. 47:340 [+0.10] For correctly explaining the impact of Act 445 of 2022 on digital products taxation: Amending LA R.S. 47:301(16)(i) to explicitly include digital products as tangible personal property Defining digital products to include software as a service (SaaS) as referenced in Revenue Information Bulletin No. 20-008 (May 22, 2020) Explaining how this expanded the tax base for software and digital goods [+0.05] For correctly identifying proper documentation requirements, including keeping exemption certificates for 5 years per LA Admin Code 61.4351 and applying the guidance in Louisiana Department of Revenue Revenue Ruling No. 10-001 (Feb. 2010) regarding proper exemption documentation. [+0.10] For proper citation style and accuracy of all statutory references, revenue rulings, and case law throughout the analysis, including appropriate application of Revenue Information Bulletin No. 18-002 (January 16, 2018) regarding the taxability of various services.


Question: Midwest Precision Technologies, Inc. (MPT) is headquartered in Lincoln, Nebraska with the following operations: Manufacturing facility in Omaha, Nebraska Sales office in Des Moines, Iowa with 3 full-time employees Warehouse/fulfillment center in Council Bluffs, Iowa ($125,000 inventory) Contract with FlexShip (a drop-shipper) in Sioux Falls, South Dakota MPT sells specialized manufacturing equipment and components through multiple channels: A. Direct sales (company representatives): $580,000/year to Iowa customers B. Company website: $340,000/year to Iowa customers C. TechBay (marketplace facilitator): $290,000/year to Iowa customers D. MachineSource (marketplace facilitator): $170,000/year to Iowa customers Their product catalog includes: Complete industrial machinery: 40% of sales revenue Control systems that can be integrated with existing machinery: 25% of sales Component parts that buyers incorporate into their own products: 20% of sales Replacement parts for previously sold equipment: 10% of sales Software licenses for machinery operation (delivered electronically): 5% of sales Customer base: Manufacturing businesses claiming manufacturing exemptions: 40% Agriculture operations claiming agricultural exemptions: 15% Educational institutions claiming educational exemptions: 10% Government entities claiming governmental exemptions: 5% Resellers with resale certificates: 20% End consumers (non-exempt): 10% MPT has the following shipping arrangements: Direct sales are shipped from the nearest company facility Website orders under $1,000 ship from the Council Bluffs warehouse Website orders over $1,000 and all marketplace orders ship via FlexShip Custom orders ship directly from the Omaha manufacturing facility To complicate matters: MPT recently acquired Iowatech Solutions in Cedar Rapids (July 2024) MPT offers installation services in Iowa ($85,000/year) MPT provides 3-month free maintenance agreements with all equipment Extended maintenance agreements are offered separately ($125,000/year in Iowa) MPT has audit notifications pending in Nebraska and Iowa What are the sales and use tax collection, reporting, and documentation obligations for MPT and all involved parties? Analyze all relevant nexus standards, product taxability, exemption requirements, and special provisions for each state. Include proper citations to relevant statutes, regulations, and case law.

I. Nexus Analysis (0.25 points) [+0.05] For correctly identifying MPT's Nebraska nexus through headquarters and manufacturing facility under Nebraska Revised Statute § 77-2701.13(1) [+0.05] For identifying all forms of Iowa physical presence nexus (sales office, warehouse, installation services, acquired business) citing Iowa Code § 423.1(48)(a) [+0.05] For calculating total Iowa sales as $1,380,000 and determining economic nexus under Iowa Code § 423.14A(1) [+0.05] For analyzing FlexShip's nexus in South Dakota under SDCL § 10-45-1 [+0.05] For citing Wayfair and its implications for economic nexus standards II. Sales Channel Obligations (0.20 points) [+0.05] For analyzing MPT's collection requirements for direct sales including state and local tax rates [+0.05] For correctly differentiating website sales treatment based on fulfillment location (Council Bluffs vs. FlexShip) [+0.05] For explaining marketplace facilitator responsibilities under Iowa Code § 423.14A(3) [+0.05] For identifying MPT's record-keeping obligations for marketplace sales per Iowa Admin Code 701-215.3 III. Product & Service Taxability (0.25 points) [+0.05] For analyzing industrial machinery taxability and potential exemptions under Iowa Code § 423.3(47) [+0.05] For explaining component and replacement parts treatment, including manufacturing exemption under Iowa Code § 423.3(47)(a)(4) [+0.05] For addressing electronic software license taxation under Iowa Code § 423.2(1)(a)(5) [+0.05] For explaining installation services exemption when separately stated (Iowa Code § 423.3(70)) [+0.05] For analyzing both free and extended maintenance agreements, with extended agreements taxable under Iowa Code § 423.2(1)(b) IV. Exemption Certificate Requirements (0.15 points) [+0.05] For detailing Iowa manufacturing exemption documentation requirements using Iowa Sales/Use Tax Exemption Certificate (form 31-014) [+0.05] For explaining resale certificate requirements with reference to Shelter Mutual Insurance Co. v. Department of Revenue case law [+0.05] For addressing agricultural, educational, and governmental exemption documentation requirements V. Special Considerations (0.15 points) [+0.05] For analyzing successor liability issues related to Iowatech Solutions acquisition under Iowa Code § 421.28 [+0.05] For addressing multi-state drop shipping documentation requirements, citing Nebraska Revenue Ruling 1-037-2013 [+0.05] For explaining audit-related record retention requirements under Iowa Code § 423.41 and Nebraska Revised Statute § 77-2785


Question: Aloha Tech Solutions (ATS) is a Delaware corporation with complex multi-state operations involving Hawaii: ATS operates a tiered digital services platform with the following Hawaii revenue streams: a. Basic tier services provided to 180 Hawaii individual users ($75,000 annual revenue) b. Premium tier services to 3 enterprise Hawaii customers ($90,000 annual revenue) c. Custom development services performed remotely for Hawaii customers ($40,000) ATS has contractual relationships with multiple entities: a. ATS contracts with Hawaiian Hospitality Group (HHG) to develop specialized software. Under the contract, ATS retains intellectual property rights while HHG receives a perpetual license. The total contract is $350,000, with $150,000 allocated to development services and $200,000 to the license. b. ATS sublicenses third-party software to Hawaii businesses through its marketplace platform ($225,000 in gross receipts) while retaining 30% ($67,500) as its commission. c. ATS provides service bureau data processing for a Hawaii government agency under a $120,000 contract. ATS has the following additional Hawaii connections: a. Leases equipment to Hawaii customers ($55,000 annual lease receipts) b. Makes bulk purchases of server capacity from a Hawaii data center ($85,000), which it then repackages and resells to its own customers throughout the Pacific region. c. Imports $75,000 in specialized networking equipment to Hawaii, with $45,000 installed permanently at client locations and $30,000 temporarily used for a project before being shipped to Guam. d. Provides an integrated service package where Hawaii customers pay $180,000 annually, but the service is utilized 40% in Hawaii and 60% in other states. ATS has a subsidiary that qualifies as a "qualified person" engaged in a "service business or calling" under HRS §237-29.53. Determine ATS's complete Hawaii GET and Use Tax obligations, addressing all relevant sourcing rules, exemptions, wholesale vs. retail distinctions, marketplace facilitator obligations, and any available apportionment methodologies. Cite specific Hawaii Revised Statutes, Tax Information Releases, and case law where applicable.

[+0.075] For correctly identifying ATS has economic nexus through revenues exceeding $100,000 threshold under HRS §237-2.5(a) and physical presence nexus through equipment in Hawaii [+0.05] For correctly analyzing basic tier services ($75,000) as taxable under HRS §237-13(6) at 4% (4.5% on Oahu) and noting the 180 transactions help establish nexus under the 200 transaction threshold [+0.05] For correctly analyzing premium tier services ($90,000) and custom development services ($40,000) as taxable under HRS §237-13(6) at 4% (4.5% on Oahu), citing TIR 2021-05 for cloud services [+0.1] For correctly analyzing the HHG contract ($350,000), identifying that the development services component ($150,000) is taxable under HRS §237-13(6) and the license component ($200,000) is taxable under HRS §237-13(8)(A) at 4% (4.5% on Oahu), with reference to the Travelocity.com case [+0.1] For correctly analyzing marketplace facilitation obligations under HRS §237-4.5, explaining ATS must collect and remit GET on the full $225,000 (not just its commission) at 4% (4.5% on Oahu) and citing TIR 2021-01 [+0.075] For correctly analyzing the government agency contract ($120,000) as taxable at 4% (4.5% on Oahu) under HRS §237-13(6), noting it doesn't qualify for the reduced 0.5% rate for scientific contracts under HRS §237-13(3)(C) [+0.075] For correctly analyzing equipment leasing ($55,000) as taxable under HRS §237-13(8)(A) and properly addressing server capacity purchases/resales ($85,000) as qualifying for the wholesale rate of 0.5% under HRS §237-4(a)(1) if resale certificates are maintained [+0.1] For correctly analyzing imported equipment tax obligations: permanently installed equipment ($45,000) subject to Use Tax under HRS §238-2 and temporarily used equipment ($30,000) potentially exempt under temporary use exemption in HRS §238-1(6) [+0.075] For correctly applying income splitting/apportionment under HRS §237-29.53 to the integrated service package, calculating that only 40% ($72,000) is subject to GET based on Hawaii usage [+0.05] For correctly explaining the qualified person subsidiary potential benefits under HRS §237-29.53 and noting proper documentation requirements [+0.1] For correctly identifying all filing requirements: registration using Form BB-1, filing Forms G-45, G-49, G-26, Schedule GE for exempt sales, application of county surcharges, and documentation requirements, citing the taxpayer's burden of proof for claiming exemptions or special treatment [+0.05] For correctly addressing additional county surcharge of 0.5% for Oahu transactions with proper allocation using Schedule GE [+0.05] For consistently applying the correct tax rates throughout (4% state rate, 4.5% on Oahu) [+0.05] For properly identifying and explaining all relevant documentation requirements (resale certificates, apportionment records, temporary use documentation)


Question: Desert Horizon Enterprises (DHE) is headquartered in Albuquerque, New Mexico, and operates in several business segments: Retail Furniture Sales: Operates a showroom in Albuquerque and another on the Santa Clara Pueblo tribal land. Sells through its website and three marketplace platforms. Maintains inventory in a fulfillment center located in a Foreign Trade Zone (FTZ) in Phoenix, Arizona. Has drop-shipping arrangements with manufacturers in Texas and Colorado. Design Services: Provides interior design consulting services to clients in multiple states. Some design services are bundled with furniture sales; others are sold separately. For New Mexico projects, designers physically visit client locations. For out-of-state projects, consultations are conducted virtually. Custom Manufacturing: Fabricates custom furniture pieces in its Albuquerque workshop. Also contracts with artisans on various New Mexico Pueblos who create pieces that DHE sells. Some items are partially manufactured in New Mexico, then finished in a workshop in El Paso, Texas. During the 2024 tax year, DHE had the following transactions: Direct Website Sales: $95,000 to Arizona customers (shipped from FTZ in Phoenix) $75,000 to Arizona customers (shipped from Albuquerque) $110,000 to Texas customers (all shipped from Albuquerque) $40,000 to Colorado customers (drop-shipped from Texas manufacturer) $350,000 to New Mexico customers, including $85,000 to customers located on various Tribal lands Marketplace Platform Sales: $130,000 to Arizona customers $90,000 to Texas customers $70,000 to New Mexico customers (including $25,000 to Tribal lands) Design Services: $70,000 to Arizona clients (all virtual) $50,000 to Texas clients (all virtual) $130,000 to New Mexico clients (in-person), including $35,000 for services on Tribal lands $45,000 for bundled design services with furniture purchases across all states Custom Manufacturing: $180,000 for items manufactured entirely in Albuquerque $95,000 for items created by Pueblo artisans $120,000 for items partially manufactured in New Mexico and finished in Texas Required: A) Determine DHE's sales/gross receipts tax registration and collection obligations in each jurisdiction (New Mexico, Arizona, Texas, Colorado, and applicable Tribal jurisdictions). Cite relevant statutes, regulations, or case law. B) Explain how DHE should source each category of transaction for tax purposes, particularly addressing the complexities of: Foreign Trade Zone shipments Tribal land transactions Multi-state manufacturing Bundled transactions (products with services) Marketplace facilitator considerations C) Calculate the taxable receipts that should be reported on DHE's New Mexico GRT return, identifying applicable deductions with statutory citations. Explain any special documentation requirements. D) Identify any potential audit risk areas and recommend strategies for compliance.

A) Registration and Collection Obligations (0.25 points) [+0.05] For correctly identifying DHE's New Mexico GRT registration obligations under NMSA § 7-9-4 with explanation of physical presence nexus through Albuquerque locations [+0.05] For correctly analyzing Arizona nexus through both: Physical presence via Phoenix FTZ inventory Economic nexus exceeding $100,000 threshold under A.R.S. § 42-5514 Citation of Arizona TPR 08-1 regarding FTZ status not eliminating state tax obligations [+0.05] For correctly analyzing Texas nexus through: Physical presence via El Paso workshop under Texas Tax Code § 151.107(a)(3) Citation of Texas Comptroller's Decision in Hearing No. 116,368 (2022) regarding in-state manufacturing [+0.05] For correctly analyzing Colorado obligations: Direct sales below threshold ($40,000) per Colo. Rev. Stat. § 39-26-102(3)(c) Drop-shipping complexities under Colorado Special Regulation 39-26-102(3) [+0.05] For correctly analyzing Tribal jurisdiction considerations: Applying principles from Ramah Navajo School Board v. Bureau of Revenue, 458 U.S. 832 (1982) Applying New Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (1983) Identifying registration requirements with Santa Clara Pueblo tax authorities B) Sourcing of Transactions (0.25 points) [+0.05] For correctly explaining Foreign Trade Zone sourcing: Citing 19 U.S.C. § 81c regarding FTZ status Explaining taxation point when goods leave FTZ under A.R.S. § 42-5061 Proper application of Arizona Tax Ruling TPR 08-1 [+0.05] For correctly explaining Tribal land transaction sourcing: Applying White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) balancing test Citing Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989) regarding non-Indian businesses Application of New Mexico Taxation and Revenue Department FYI-401 for sales to tribal members [+0.05] For correctly explaining multi-state manufacturing sourcing: Properly defining manufacturing under NMSA § 7-9-3(F) Explaining Texas Manufacturing Exemption under Texas Tax Code § 151.318 Applying principles from Kewanee Industries v. Reese, 114 N.M. 784 (1992) [+0.05] For correctly explaining bundled transaction sourcing: Explaining "true object" or "primary purpose" test Citing New Mexico Regulation 3.2.1.14(C) NMAC Citing Arizona Administrative Code R15-5-1703 Referencing Texas Comptroller's Tax Policy News (June 2010) [+0.05] For correctly explaining marketplace facilitator sourcing: Citing NMSA § 7-9-5.2 for New Mexico Citing A.R.S. § 42-5043 for Arizona Citing Texas Tax Code § 151.0242 for Texas C) New Mexico GRT Return Calculation (0.30 points) [+0.05] For correctly identifying total gross receipts to be reported ($1,655,000) [+0.05] For correctly applying out-of-state sales deduction under NMSA § 7-9-57: $75,000 (AZ) + $110,000 (TX) = $185,000 Citing documentation requirements under Regulation 3.2.213.8 NMAC [+0.05] For correctly applying marketplace provider deduction under NMSA § 7-9-3.2(R): $130,000 (AZ) + $90,000 (TX) + $45,000 (NM excluding Tribal) = $265,000 [+0.05] For correctly applying tribal sales deduction under NMSA § 7-9-30: Identifying portion of $85,000 + $25,000 eligible Citing documentation requirements under Regulation 3.2.215.9 NMAC [+0.05] For correctly applying manufacturing deduction under NMSA § 7-9-46: Proper analysis of $120,000 for partially manufactured items [+0.05] For correctly applying services performed outside NM deduction under NMSA § 7-9-13.1: Proper analysis of $70,000 (AZ) + $50,000 (TX) virtual services Citing documentation requirements under Regulation 3.2.1.18 NMAC D) Audit Risk Areas and Compliance Strategies (0.20 points) [+0.04] For identifying tribal land transaction risks: Citing Confederated Tribes of the Chehalis Reservation v. Thurston County Providing specific record-keeping strategies for tribal member status [+0.04] For identifying Foreign Trade Zone operation risks: Citing Arizona Department of Revenue Tax Ruling TPR 08-1 Providing specific tracking system recommendations for FTZ exit documentation [+0.04] For identifying multi-state manufacturing risks: Citing Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) Providing specific documentation strategies for value-added in each state [+0.04] For identifying bundled transaction risks: Citing New Mexico Regulation 3.2.1.14(C) NMAC Providing specific strategies for separate statement of charges [+0.04] For identifying marketplace facilitator reporting risks: Citing New Mexico Taxation and Revenue Department Publication FYI-105 Providing specific reconciliation procedures for marketplace reports


Question: ABC Corporation, based in California, has expanded its business to include software products, digital goods, and SaaS offerings in addition to its physical widgets. ABC's digital offerings include: WidgetSoft: Software available via download or physical media (USB drive) WidgetCloud: A SaaS platform with monthly subscription fees WidgetTraining: Digital training materials and videos WidgetPlus: A hybrid product that includes physical components and digital access codes In 2024, ABC had the following sales across various states: New York: $80,000 in physical widgets $60,000 in WidgetSoft (downloaded) $40,000 in WidgetSoft (USB drive) $90,000 in WidgetCloud subscriptions $30,000 in WidgetTraining $50,000 in WidgetPlus Tennessee: $70,000 in physical widgets $45,000 in WidgetSoft (downloaded) $35,000 in WidgetSoft (USB drive) $85,000 in WidgetCloud subscriptions $25,000 in WidgetTraining $40,000 in WidgetPlus Washington: $90,000 in physical widgets $55,000 in WidgetSoft (downloaded) $45,000 in WidgetSoft (USB drive) $95,000 in WidgetCloud subscriptions $35,000 in WidgetTraining $60,000 in WidgetPlus For a Tennessee business with headquarters in Nashville and satellite offices in Knoxville and Memphis, ABC provides a $24,000 annual WidgetCloud subscription that serves 40 users (15 in Nashville, 10 in Knoxville, 10 in Memphis, and 5 who work remotely from Kentucky). Required: For each state, identify which of ABC's digital products are taxable, citing relevant authority. Explain the proper sourcing rules for the multi-location WidgetCloud subscription in Tennessee. Calculate the exact sales tax due on the Tennessee business's WidgetCloud subscription. Determine how ABC's tax obligations would change if the Tennessee business claimed the subscription was for resale to its own customers. Analyze the specific taxability of each component of the WidgetPlus hybrid product in Washington state under bundled transaction rules.

[+0.15] For correctly identifying the taxability of each digital product in New York: WidgetSoft (downloaded): Taxable as prewritten software per N.Y. Tax Law § 1101(b)(14), TSB-M-11(1)S WidgetSoft (USB): Taxable as prewritten software on tangible medium WidgetCloud: Taxable as a right to use prewritten software per TSB-M-10(7)S WidgetTraining: Taxable if considered prewritten software; exempt if qualifying educational materials per N.Y. Comp. Codes R. & Regs. tit. 20, § 527.4 WidgetPlus: Requires "bundled transaction" analysis per TSB-M-12(1)S [+0.15] For correctly identifying the taxability of each digital product in Tennessee: WidgetSoft (downloaded): Taxable as specified digital products per Tenn. Code Ann. § 67-6-233 WidgetSoft (USB): Taxable as computer software on tangible medium WidgetCloud: Taxable as remotely accessed software per Tenn. Code Ann. § 67-6-231 WidgetTraining: Taxable as specified digital products per Tenn. Code Ann. § 67-6-102(89) WidgetPlus: Taxable as a bundled transaction per Tenn. Code Ann. § 67-6-102(16) [+0.15] For correctly identifying the taxability of each digital product in Washington: WidgetSoft (downloaded): Taxable as digital goods per RCW 82.04.192 WidgetSoft (USB): Taxable as prewritten computer software on tangible medium WidgetCloud: Taxable as remote access software per RCW 82.04.050(8) WidgetTraining: Taxable unless qualifying for digital educational content exemption per RCW 82.04.192(3)(b) WidgetPlus: Subject to bundled transaction analysis per RCW 82.08.195 [+0.1] For correctly explaining Tennessee's sourcing rules for the multi-location subscription: Tennessee follows destination-based sourcing per Tenn. Code Ann. § 67-6-904 For cloud-based services, tax is based on user locations Must allocate subscription value proportionally by user location [+0.2] For correctly calculating the Tennessee sales tax on the WidgetCloud subscription: Nashville (15 users): $24,000 × (15/40) = $9,000 × 9.75% = $877.50 Knoxville (10 users): $24,000 × (10/40) = $6,000 × 9.75% = $585.00 Memphis (10 users): $24,000 × (10/40) = $6,000 × 9.75% = $585.00 Kentucky (5 users): $24,000 × (5/40) = $3,000 - not subject to Tennessee tax Total Tennessee tax due: $2,047.50 [+0.1] For correctly analyzing the resale claim implications: Customer must provide Tennessee resale certificate (Form RV-F1300701) Customer must be registered for Tennessee sales tax Customer must actually resell the access as a regular part of business per Tenn. Code Ann. § 67-6-102(76) If not a true resale, both ABC and customer could face penalties per Tenn. Code Ann. § 67-6-607 [+0.15] For correctly analyzing the WidgetPlus hybrid product in Washington: Physical components: Taxable as tangible personal property Digital access codes: Taxable as digital goods per RCW 82.04.192(2)(c) Under Washington's bundled transaction rules (RCW 82.08.195): If price of taxable components is ≤ 10% of total: Only taxable portions are taxed If price is > 10%: Entire bundle is taxable unless separately stated ABC must maintain records showing allocation between components Documentation requirement: Must maintain reasonable allocation method per WAC 458-20-15503


Question: ABC Advanced Technologies, Inc. is a Delaware corporation headquartered in California that designs, manufactures, and sells integrated manufacturing systems. ABC has the following business presence: Corporate headquarters and R&D facility in Palo Alto, California Manufacturing facility in Phoenix, Arizona Warehouse in Salt Lake City, Utah Sales offices in Las Vegas, Nevada and Portland, Oregon Remote employees working from home in Colorado, Texas, and Florida Server infrastructure leased from a data center in Iowa In April 2024, ABC entered into a contract with XYZ Precision Manufacturing, Inc., a company with facilities in: Corporate headquarters in Reno, Nevada Manufacturing plants in Henderson, Nevada and Albuquerque, New Mexico Distribution center in Denver, Colorado The contract was for a comprehensive manufacturing system consisting of: Custom fabrication equipment manufactured by ABC in Arizona ($350,000) Specialized robotic components purchased by ABC from a Japanese supplier and temporarily stored at ABC's Utah warehouse before delivery ($275,000) Measurement equipment drop-shipped directly from a German supplier to XYZ's facility in New Mexico ($150,000) Proprietary cloud-based control software developed by ABC, hosted on the Iowa servers ($225,000 - 5-year subscription) On-premises software installed on XYZ's servers in Nevada and New Mexico ($175,000 - perpetual license) Digital product design templates created by ABC's California team ($80,000 - perpetual license) The contract also included: Assembly and installation services performed by ABC technicians in both Nevada and New Mexico facilities ($95,000) Training for XYZ employees at ABC's California facility ($45,000) 24/7 technical support services for 5 years ($120,000) A mandatory maintenance agreement for physical components ($40,000/year for 5 years) Right to use ABC's patented manufacturing processes (royalty of 1.5% on gross revenues from products manufactured using the system, estimated at $75,000/year) The contract was negotiated and signed electronically while the XYZ procurement officer was attending a trade show in Texas. The total contract value is $2,125,000, including the estimated royalty payments. XYZ made an initial payment of $1,250,000 from its Nevada headquarters. The remaining payments are scheduled over the 5-year term of the agreement. After installation, XYZ discovered that the system could be controlled remotely and decided to operate the New Mexico equipment from their Nevada headquarters, with only maintenance staff physically present in New Mexico. Required: Thoroughly analyze the sales and use tax implications of this transaction, identifying which components are taxable in which jurisdictions, who is responsible for collecting and remitting the taxes, applicable exemptions, how the electronic signing and remote operation affect the analysis, and calculate the total sales and use tax liability for the first year using the following rates: Nevada: 8.265% (state + local) New Mexico: 7.875% (state + local) California: 8.5% (state + local) Arizona: 8.9% (state + local) Utah: 7.75% (state + local) Texas: 8.25% (state + local) Colorado: 8.0% (state + local) Iowa: 7% (state + local) Provide specific justifications with citations to relevant statutes, regulations, and case law.

[+0.10] For correctly identifying ABC's nexus in all relevant states (California, Arizona, Utah, Nevada, Iowa) with proper statutory citations and explaining how South Dakota v. Wayfair (2018) creates economic nexus in other jurisdictions [+0.05] For properly analyzing the temporary storage exemption in Utah Code § 59-12-104(82) regarding the robotic components stored at ABC's Utah warehouse [+0.05] For correctly determining that the drop-shipped measurement equipment is subject to New Mexico gross receipts tax under N.M. Stat. § 7-9-3 despite ABC not taking physical possession [+0.10] For accurately analyzing the multi-state taxation issues for cloud-based software with reference to the Multistate Tax Commission's guidance and D.H. Holmes Co. v. McNamara (1988) [+0.05] For correctly categorizing on-premises software as taxable tangible personal property in both Nevada (Nev. Rev. Stat. § 372.105) and New Mexico (N.M. Stat. § 7-9-3(M)) [+0.05] For proper analysis of digital product design templates as exempt in California for interstate sales (Cal. Rev. & Tax Code § 6396) but taxable in destination states [+0.10] For differentiating between installation services (exempt if separately stated in Nevada under Nev. Admin. Code § 372.200) and taxable services in New Mexico (N.M. Stat. § 7-9-3) [+0.05] For correctly determining the California sales tax applicability to training services performed in California under Cal. Rev. & Tax Code § 6051 [+0.05] For properly analyzing the technical support services as generally exempt from California sales tax when delivered to out-of-state recipients under Cal. Rev. & Tax Code § 6396 and Cal. Code Regs. tit. 18, § 1502, which specifies that support services provided electronically to out-of-state locations are not subject to California sales tax [+0.05] For accurately categorizing the maintenance agreement as taxable in Nevada (Nev. Rev. Stat. § 372.105) and New Mexico (N.M. Stat. § 7-9-3) [+0.05] For correct analysis of patent royalties as generally exempt intangible property with reference to Norwest Corp. v. Commissioner of Revenue (Minn. 1996) that distinguishes true royalty payments from disguised sales prices [+0.05] For properly analyzing the electronic contract signing in Texas under the Streamlined Sales Tax Agreement and Complete Auto Transit, Inc. v. Brady (1977) requirements for substantial nexus [+0.05] For correct analysis of the remote operation issues with reference to Goldberg v. Sweet (1989) regarding taxation of interstate telecommunications [+0.10] For accurately calculating Nevada tax liability with proper allocation between facilities: Physical equipment: $465,000 × 8.265% = $38,432.25 On-premises software (60%): $105,000 × 8.265% = $8,678.25 Digital templates (60%): $48,000 × 8.265% = $3,967.20 Cloud software (60%): $135,000 × 8.265% = $11,157.75 Maintenance (60%): $24,000 × 8.265% = $1,983.60 Total Nevada: $64,219.05 [+0.05] For accurately calculating New Mexico tax liability with proper allocation: Physical equipment: $310,000 × 7.875% = $24,412.50 On-premises software (40%): $70,000 × 7.875% = $5,512.50 Digital templates (40%): $32,000 × 7.875% = $2,520.00 Installation (40%): $38,000 × 7.875% = $2,992.50 Cloud software (40%): $90,000 × 7.875% = $7,087.50 Maintenance (40%): $16,000 × 7.875% = $1,260.00 Total New Mexico: $43,785.00 [+0.05] For correctly calculating California tax liability: Training services: $45,000 × 8.5% = $3,825.00 Total California: $3,825.00 [+0.05] For accurately identifying applicable exemptions including: Manufacturing equipment exemptions (Nev. Rev. Stat. § 372.3261 and N.M. Stat. § 7-9-46) R&D exemptions for digital templates Enterprise Zone or Foreign Trade Zone implications Streamlined Sales Tax provisions for digital products


Question: Global Manufacturing, Inc. (GMI) is headquartered in Delaware with fulfillment centers in Nevada and Arizona. GMI sells specialized manufacturing equipment through the following channels: Direct sales through its website to customers nationwide Through MultiMarket (a marketplace facilitator with warehouses in California) Through a complex drop shipping network involving: SupplyCo (based in China, with a warehouse in Washington state) TechParts (based in Texas, with no physical presence in California) A California customer, Innovations LLC, places a $750,000 order for a custom manufacturing system with these components: $350,000 in equipment shipped from GMI's Nevada facility to Innovations' factory in Los Angeles $150,000 in specialized parts drop-shipped from SupplyCo's Washington facility $100,000 in technology components drop-shipped from TechParts via direct import from their Korean manufacturer $150,000 in components from MultiMarket's California warehouse The transaction includes: Installation services ($75,000) performed by a California contractor Software licenses ($50,000) delivered electronically Extended warranty ($25,000) Training services ($50,000) Additionally: Part of Innovations' Los Angeles facility is located on land leased from a federally recognized Native American tribe Some components will be used in Innovations' manufacturing process for products they export internationally Innovations provides a partial manufacturing exemption certificate to GMI The transaction spans three quarterly tax reporting periods For each party involved in this transaction (GMI, MultiMarket, SupplyCo, TechParts, and Innovations LLC), determine their sales/use tax collection responsibilities, applicable exemptions, and filing requirements. Cite relevant legal authorities including specific state statutes, regulations, and judicial decisions where appropriate.

[+0.1] For correctly identifying GMI's nexus in California through economic nexus standards exceeding the $500,000 threshold (Cal. Rev. & Tax. Code § 6203(c)(4)), requiring registration for California sales/use tax collection [+0.05] For correctly identifying MultiMarket as a marketplace facilitator under Cal. Rev. & Tax. Code § 6041 with physical nexus in California through its warehouses [+0.05] For correctly citing California's marketplace facilitator law (Cal. Rev. & Tax. Code § 6042) requiring MultiMarket to collect and remit full sales tax (state + local) on the $150,000 in components from its California warehouse [+0.1] For correctly applying the partial manufacturing equipment exemption under Cal. Rev. & Tax. Code § 6377.1 to the $350,000 equipment from Nevada (3.9375% exempt from state portion, but fully subject to local taxes) [+0.1] For correctly analyzing the tribal land jurisdiction issue citing relevant case law (Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463 (1976) and/or Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980)) and explaining that state tax applies to sales to non-tribal members even on tribal land [+0.1] For correctly analyzing the taxability of the electronically delivered software ($50,000) as exempt under California Regulation 1502(f)(1)(D) when delivered without tangible storage media [+0.1] For correctly analyzing the taxability of the extended warranty ($25,000) under California Regulation 1655 as generally taxable when covering tangible personal property [+0.05] For correctly analyzing the installation services ($75,000) under California Regulation 1546, identifying that separately stated installation charges for fixtures may be exempt if they constitute a real property improvement [+0.05] For correctly analyzing the training services ($50,000) as exempt under California Regulation 1501 if separately stated and not part of the taxable sale [+0.1] For correctly analyzing the export exemption under Cal. Rev. & Tax. Code § 6396 and Kosydar v. National Cash Register Co., 417 U.S. 62 (1974), explaining that the exemption applies only when components are committed to the export stream at the time of purchase with proper documentation [+0.1] For correctly identifying the drop shipping collection responsibilities, including GMI's responsibility for collecting tax on the $150,000 in parts from SupplyCo if it issues a resale certificate, citing California's Regulation 1706(c) regarding requirements for valid resale certificates [+0.05] For correctly analyzing TechParts' responsibility for the direct imports from Korea, including potential use tax obligations and import documentation requirements [+0.05] For correctly explaining the reporting period requirements under California's Regulation 1628, noting that each component must be reported in the period when the sale is completed and the product is delivered to the customer


Question: ABC Software Corporation faces several complex sales tax scenarios across multiple states. As the tax director, analyze each situation and determine the appropriate tax treatment. Scenario 1: ABC Software Corporation, based in California, sells three distinct products nationwide: On-premise software licenses (downloaded electronically) Cloud-based SaaS subscription services Software implementation consulting services delivered remotely In 2024, the company exceeded economic nexus thresholds in New York, Texas, and Washington. For each state, determine: a) Which of ABC's products are subject to sales tax b) The applicable tax base for each taxable product c) Any available exemptions that might apply Scenario 2: ABC sells through direct channels and third-party marketplaces. Consider the following: A multi-state corporation with headquarters in New York and offices in Texas purchases enterprise SaaS licenses for 500 employees across 12 states. The contract is negotiated with ABC's California office, payment is processed in California, but the software is used by employees in all 12 states. ABC sells $350,000 of downloadable software through XYZ Marketplace to customers in Colorado, where ABC has no physical presence but exceeds economic nexus thresholds. For each scenario: a) Determine which state(s) can claim taxing rights b) Identify which party is responsible for collecting/remitting the tax c) Explain the applicable sourcing rules with specific statutory references Scenario 3: ABC sells an integrated software package to Medical Center in Ohio for $500,000. The package includes: Electronic medical records software (EMR) - $200,000 Clinical decision support AI module - $125,000 Implementation services - $100,000 Data migration services - $75,000 Medical Center is a 501(c)(3) non-profit hospital. Determine: a) The proper tax treatment of each component b) Whether bundling rules apply c) Any applicable healthcare exemptions with specific statutory references d) The final tax liability Scenario 4: In 2021-2022, ABC sold custom enterprise software to Financial Services Corp. with headquarters in Massachusetts and employees in 30 states. ABC collected Massachusetts sales tax on the entire $3.5 million transaction. In 2023, Massachusetts enacted retroactive legislation (MA Gen. Laws ch. 64H, § 1, as amended) clarifying that custom software used primarily outside Massachusetts is subject to apportionment. Analyze: a) The legal validity of a potential refund claim b) The correct procedural steps for seeking a refund c) The documentation requirements and evidentiary burden d) The applicable statute of limitations e) The calculation of the potential refund amount assuming 80% of users are outside Massachusetts

[+0.10] For correctly identifying that in New York, all three products are potentially taxable with downloadable software and SaaS taxable as "prewritten computer software" (NY Tax Law § 1101(b)(14); TB-ST-128; TSB-A-09(8)S), and consulting services taxable only if inseparable from software [+0.10] For correctly identifying that in Texas, downloaded software is taxable as "tangible personal property" (Texas Tax Code § 151.0031), SaaS is taxable as "data processing services" at 80% of the sales price (Texas Tax Code § 151.0035), and consulting services are not taxable if separately stated [+0.10] For correctly applying Washington's digital products taxation framework, identifying all products as potentially taxable as "digital automated services" (RCW 82.04.192; WAC 458-20-15503) with no B2B exemption available [+0.10] For correctly analyzing the multi-state corporate customer scenario, identifying that multiple points of use provisions apply under SSUTA § 310 for participating states, and explaining the different approaches for non-SSUTA states (benefit received, primary use location, delivery address) [+0.10] For correctly determining that the XYZ Marketplace is responsible for collecting and remitting Colorado sales tax as a "marketplace facilitator" under Colorado Rev. Stat. § 39-26-102(5.7) with proper citation to Colorado's destination-based sourcing rules (Colorado Rev. Stat. § 39-26-104(3)) [+0.10] For correctly analyzing the Ohio healthcare software package, identifying the "true object" test for bundled transactions (Ohio Admin. Code 5703-9-27) and the exemption for "computer systems used for hospital inpatient clinical healthcare" (Ohio Rev. Code § 5739.01(YY)(1)) [+0.10] For correctly identifying Medical Center's potential exemption as a 501(c)(3) hospital under Ohio Rev. Code § 5739.02(B)(12) and calculating the tax liability as $0 if properly exempted or the applicable tax on non-exempt components if bundling rules apply [+0.10] For correctly analyzing the legal validity of a Massachusetts refund claim based on retroactive legislation, citing relevant case law (First Marblehead Corp. v. Commissioner of Revenue, 470 Mass. 497 (2015)) and constitutional tests ("modestly harsh" standard from United States v. Carlton, 512 U.S. 26 (1994)) [+0.10] For correctly identifying the procedural requirements for a Massachusetts refund claim, including the 3-year statute of limitations (M.G.L. c. 62C, § 37), required Form ABT filing, and the need to apply to the Commissioner before court action [+0.10] For correctly calculating the potential Massachusetts refund amount with appropriate apportionment methodology, identifying that only 20% of the tax should have been collected ($3.5 million × 20% × MA tax rate of 6.25% = $43,750 correct tax amount), resulting in a refund of approximately $175,000 plus applicable interest (prime rate plus 2%)


Question: XYZ Corporation ("XYZ") is a technology solutions provider headquartered in San Francisco, California. They offer an integrated business solution called "SmartBiz" that includes: IoT hardware devices for inventory management and security Proprietary software with both downloadable components and cloud-based SaaS elements Initial implementation services including installation and configuration Training (both in-person and virtual) Ongoing maintenance, monitoring, and data analysis services XYZ has physical offices in California, New York, and Texas, employs remote sales representatives who work from their homes in Colorado and Tennessee, and utilizes third-party drop shippers located in Arizona and Ohio. XYZ makes sales both directly and through an online marketplace called "TechHub." For 2024, XYZ has the following sales volumes: California: $2.5 million (90% direct, 10% through TechHub) New York: $1.8 million (75% direct, 25% through TechHub) Texas: $1.2 million (all direct) Colorado: $350,000 (60% direct, 40% through TechHub) Tennessee: $275,000 (30% direct, 70% through TechHub) Georgia: $120,000 (all through TechHub) Illinois: $90,000 (all direct) Various other states: Each under $75,000 (mix of direct and marketplace) Consider the following specific transactions that occurred in November 2024: Transaction A: A multi-location retailer with headquarters in Atlanta, Georgia and distribution centers in Macon, Georgia and Nashville, Tennessee purchases a comprehensive SmartBiz solution for $475,000, broken down as: IoT hardware to be delivered to both locations ($150,000 to Georgia, $125,000 to Tennessee) Enterprise-wide software license ($100,000) with servers hosted in Texas but users in all locations Implementation services at both locations ($30,000 in Georgia, $25,000 in Tennessee) Training: in-person in Georgia ($20,000) and virtual from California for Tennessee staff ($15,000) First-year maintenance and monitoring services ($60,000) The contract is negotiated and signed at the customer's Atlanta headquarters, but the purchase order is issued from and payment is made by the Nashville office. Transaction B: A manufacturing business with facilities in Denver, Colorado (a home rule city) and Boulder, Colorado (another home rule city) purchases: IoT hardware to be installed in Denver ($85,000) and Boulder ($65,000) Software licenses ($90,000) with users in both locations Implementation in both locations ($40,000) Virtual training delivered from California ($25,000) The Denver components are sold directly by XYZ, while the Boulder components are purchased through TechHub marketplace. The software is primarily used in Denver (70%) but also in Boulder (30%). Transaction C: An e-commerce business headquartered in Chicago, Illinois with fulfillment centers in Ohio and Kentucky purchases a partial SmartBiz solution including: IoT hardware for the Kentucky location only ($110,000), to be drop-shipped directly from XYZ's Ohio-based supplier Software license ($70,000) for use by employees in all three states, but the software will be managed primarily from the Chicago headquarters Implementation services in Kentucky ($30,000) No training or maintenance components The order is placed online from the Chicago office. XYZ has no physical presence in Illinois, Kentucky, or Ohio, and its only sales to Illinois for the year are this transaction and one previous sale of $20,000. Required: For each transaction (A, B, and C): Determine XYZ's and TechHub's sales/use tax collection obligations for each component, specifying: a. In which jurisdictions they have nexus (including economic nexus) b. Which jurisdiction(s) can claim taxing rights to each component c. Who has the collection responsibility (XYZ, TechHub, or the drop shipper) d. Which sourcing rules apply (origin vs. destination) Calculate the sales tax due for each transaction, breaking down: a. State tax amounts b. Local tax amounts c. Any special district taxes that apply Identify any available exemptions, special allocations, or documentation requirements for: a. Multi-state use of software b. Service components c. Drop shipment scenarios Explain how the following recent developments would change your analysis: a. The Supreme Court case South Dakota v. Wayfair (138 S. Ct. 2080 (2018)) b. The Streamlined Sales and Use Tax Agreement provisions on digital products c. Georgia's new marketplace facilitator legislation (O.C.G.A. § 48-8-2(18.1)) enacted in 2020 d. Colorado's revised sourcing rules for home rule jurisdictions implemented through HB 22-1039 Provide citations to relevant statutes, regulations, and case law to support your analysis. Identify and explain any areas where competing state claims could lead to potential double taxation, and propose strategies to mitigate this risk.

Transaction A Analysis (Total: 0.35 points) [+0.05] For correctly identifying that XYZ has physical nexus in California, New York, Texas, Colorado, and Tennessee, and economic nexus in Georgia (exceeding $100,000 threshold per O.C.G.A. § 48-8-2(8)(M)) [+0.04] For correctly analyzing that the hardware components should be sourced to their delivery locations in Georgia and Tennessee using destination-based sourcing, citing Georgia Code § 48-8-77 and TN Code § 67-6-904 [+0.04] For correctly determining that under Georgia's marketplace facilitator law (O.C.G.A. § 48-8-2(18.1)), TechHub would be responsible for collecting tax on any portion of the transaction facilitated through the marketplace [+0.04] For properly analyzing that the software license requires allocation between Georgia and Tennessee based on user location, citing Georgia Regulation 560-12-2-.11 and Tennessee Rule 1320-05-01-.29 [+0.03] For correctly identifying that training services are exempt in Tennessee as professional services per TN Code § 67-6-309 but taxable in Georgia under O.C.G.A. § 48-8-2(31)(Y) [+0.03] For correctly calculating Georgia state tax at 4% on taxable components delivered to Georgia, plus applicable local tax rates for Fulton County (where Atlanta is located) at 3% and Bibb County (where Macon is located) at 3%, citing O.C.G.A. § 48-8-30 and § 48-8-82 [+0.03] For correctly calculating Tennessee state tax at 7% on taxable components delivered to Tennessee, plus Davidson County (Nashville) local tax of 2.25%, citing TN Code § 67-6-202 and § 67-6-702 [+0.03] For properly analyzing that maintenance services should be allocated between states based on the location of the hardware being maintained, citing Georgia Regulation 560-12-2-.32 and Tennessee Rule 1320-05-01-.32 [+0.03] For correctly identifying the contract signing location (Atlanta) versus purchase order/payment location (Nashville) conflict, and properly determining that the predominant use test governs, citing Georgia Regulation 560-12-2-.19 and Tennessee Rule 1320-05-01-.08 [+0.03] For correctly identifying multiple points of use (MPU) documentation requirements for the software component, including the need for exemption certificates showing the percentage of users in each state Transaction B Analysis (Total: 0.35 points) [+0.05] For correctly analyzing Colorado's complex home rule city system, identifying that Denver and Boulder administer their own sales taxes with different rules from the state, citing CRS § 29-2-106 and acknowledging XYZ's nexus in Colorado through sales representatives [+0.04] For properly determining that TechHub is responsible for collecting Boulder city tax (3.86%) on the Boulder components under Boulder Municipal Code § 3-1-1(t) and § 3-2-6, while XYZ must collect Denver city tax (4.81%) on Denver components (Denver Municipal Code § 53-70) [+0.04] For correctly analyzing Colorado's special sourcing rules for software, noting that software used in multiple locations should be sourced according to the "primary use" location unless a Multiple Points of Use certificate is provided, citing Colorado Department of Revenue Regulation 39-26-102(12) [+0.04] For correctly calculating state-level tax on all components (2.9% per CRS § 39-26-106), RTD tax (1.0% per CRS § 32-9-119), and other special district taxes applicable to both Denver and Boulder [+0.04] For properly determining that virtual training delivered from California is a non-taxable service in Colorado under CRS § 39-26-104(1)(a) as it does not involve the transfer of tangible personal property [+0.03] For correctly applying the 70%/30% software usage allocation between Denver and Boulder, calculating Denver's portion of the software (70% of $90,000 = $63,000) taxed at Denver's rates and Boulder's portion (30% of $90,000 = $27,000) taxed at Boulder's rates [+0.03] For properly analyzing that implementation services are taxable in both Denver and Boulder as they are directly related to taxable tangible personal property, citing CRS § 39-26-104(1)(a) and the respective municipal codes [+0.03] For correctly identifying that Colorado's home rule cities can establish different tax bases from the state, and properly determining which components are taxable under each jurisdiction's rules [+0.03] For correctly applying Colorado's destination-based sourcing for state-administered taxes while acknowledging that Denver and Boulder have their own sourcing rules that must be applied separately, citing CRS § 39-26-104(3) [+0.02] For correctly identifying documentation requirements for claiming exemptions in home rule jurisdictions, including the need for separate exemption certificates for state versus municipal taxes Transaction C Analysis (Total: 0.30 points) [+0.05] For correctly analyzing the drop shipment scenario where XYZ's Ohio supplier ships directly to Kentucky, determining that Kentucky's drop shipment rules apply, citing KRS § 139.105 [+0.04] For properly determining XYZ's economic nexus status in Illinois (below $100,000 threshold with only $90,000 in sales, citing 35 ILCS 120/2), Kentucky (exceeding $100,000 with this transaction, citing KRS § 139.340), and Ohio (no nexus as drop shipper is an independent third party) [+0.04] For correctly analyzing that the drop shipper in Ohio would not have collection responsibility since XYZ has economic nexus in Kentucky where the goods are delivered, citing Kentucky Regulation 103 KAR 31:030 [+0.04] For properly determining that the software license for multi-state use should be primarily sourced to Illinois (Chicago headquarters) under the "primary use" test, citing 86 Ill. Admin. Code § 130.1935 [+0.03] For correctly calculating Kentucky state tax (6%) on the hardware and implementation services delivered to Kentucky, plus any applicable local taxes, citing KRS § 139.200 and § 139.470 [+0.03] For correctly determining that Illinois would impose tax on the software license under 35 ILCS 120/2-25, but XYZ lacks economic nexus to be required to collect it, and identifying that the customer would have use tax obligations [+0.03] For properly analyzing that implementation services in Kentucky are taxable as they are directly connected to the sale of taxable tangible personal property, citing KRS § 139.200(2)(g) [+0.02] For correctly identifying that the Chicago-based customer could provide a Multiple Points of Use exemption certificate to avoid double taxation on the software component, citing 86 Ill. Admin. Code § 130.1935(c) [+0.02] For properly analyzing potential competing claims to tax the software between Illinois (primary management location) and Kentucky/Ohio (user locations), identifying the risk of double taxation without proper documentation Explanation of Recent Developments (Total: 0.30 points) [+0.08] For thoroughly explaining how South Dakota v. Wayfair established economic nexus standards that would require remote sellers to collect tax once thresholds are met, correctly analyzing how this specifically impacts each transaction, and identifying that even without physical presence, XYZ would have collection obligations in states where it exceeds economic nexus thresholds [+0.08] For correctly analyzing how the Streamlined Sales and Use Tax Agreement's provisions on digital products would affect the taxation of the software components, specifically noting the uniform definitions and sourcing rules for digital products, and properly applying these rules to the multi-state software usage scenarios in all three transactions [+0.07] For thoroughly explaining Georgia's marketplace facilitator legislation (O.C.G.A. § 48-8-2(18.1)), how it shifts collection responsibility to TechHub for Georgia sales, and correctly analyzing how this impacts Transaction A's Georgia components [+0.07] For correctly explaining Colorado's revised sourcing rules for home rule jurisdictions implemented through HB 22-1039, including the movement toward greater uniformity in sourcing between state and home rule jurisdictions, and properly analyzing how these changes would impact the taxation of Transaction B's components in Denver and Boulder


Question: Omega Partnership (owned equally by partners A, B, and C) owns three investment properties:- Property X: Basis $2M, FMV $5M, acquired 2010, $1.2M accumulated depreciation- Property Y: Basis $3M, FMV $2.5M, acquired 2015, $500,000 accumulated depreciation- Property Z: Basis $1.5M, FMV $4M, acquired 2018, $300,000 accumulated depreciationOn June 1, 2023, Omega exchanges Property X for a 40% interest in Delta LLC (a real estate holding company) valued at $4.2M, plus a note for $800,000 payable over 5 years with 5% interest. Delta LLC is owned by Partner A's sister.Simultaneously, Partner C sells his partnership interest to an unrelated party for $3.5M (C's outside basis is $2M).On December 15, 2023, Delta LLC sells 30% of its real estate holdings (held for 10 years).Required:1. Calculate Omega Partnership's recognized gain on the exchange, including character2. Determine Omega's basis in the Delta LLC interest3. Calculate Partner C's recognized gain and character4. Analyze the tax implications of Delta LLC's December sale on Omega5. Discuss whether Section 754 elections would affect any of the above

[+0.10] For correctly identifying that Omega's realized gain on Property X is $3M ($5M FMV - $2M basis)[+0.10] For correctly identifying that the $800,000 note constitutes boot under Section 1031(b)[+0.10] For correctly calculating that Omega must recognize $800,000 of gain due to boot received (the lesser of boot received or gain realized)[+0.10] For correctly characterizing the $800,000 recognized gain as Section 1250 unrecaptured gain taxed at 25% per Section 1(h)(6)[+0.05] For identifying that the related party rules of Section 1031(f) apply since Delta LLC is owned by Partner A's sister[+0.10] For correctly calculating Omega's basis in the Delta LLC interest as $2M using the formula: original basis ($2M) - boot received ($800,000) + gain recognized ($800,000)[+0.10] For correctly calculating Partner C's recognized gain as $1.5M ($3.5M - $2M basis)[+0.05] For correctly identifying that Partner C's gain is generally capital gain under Section 741[+0.05] For recognizing that Section 751(a) requires ordinary income treatment for C's share of "hot assets" including Section 1250 recapture potential[+0.10] For correctly determining that Delta LLC's December sale triggers Section 1031(f)(1)(C) because a related party disposed of exchange property within 2 years[+0.10] For correctly explaining that under Section 1031(f)(1), Omega must recognize the previously deferred gain of $2.2M ($3M realized gain - $800,000 already recognized) due to Delta LLC's disqualifying disposition, subject to any applicable exceptions in Section 1031(f)(2)[+0.05] For correctly explaining that a Section 754 election by Omega would create a Section 743(b) special basis adjustment of $1.5M for Partner C's replacement[+0.05] For correctly explaining that Omega's exchange would not trigger a Section 743(b) adjustment in Delta LLC even with a Section 754 election in place[+0.05] For identifying potential recharacterization issues under Revenue Ruling 99-5 depending on Delta LLC's tax classification


Question: Omega LLC (owned by Patricia) transfers a commercial building to a qualified intermediary on January 15, 2023. The building has an adjusted basis of $3M ($5M original cost less $2M accumulated depreciation) and FMV of $8M, with $1.5M of mortgage debt. The building was acquired in 2010 and has been used in Omega's business since acquisition.On February 20, 2023, Omega identifies three potential replacement properties:- Property X: Shopping center owned by Gamma LLC (controlled by Patricia's sister), FMV $7M- Property Y: Office building, FMV $5M- Property Z: Industrial park, FMV $4MOn June 1, 2023, Omega acquires Property X for $7M, with the qualified intermediary transferring the exchange proceeds and Omega assuming a $2M mortgage on Property X. Gamma LLC had a basis of $4M in Property X.On December 15, 2024, Gamma LLC sells the commercial building it received for $8.5M, receiving $2M cash and a note for $6.5M payable over 5 years.Required: Analyze the tax consequences for all parties. Your answer should address:1. The initial exchange's qualification under Section 10312. Recognized gain for Omega LLC in 20233. Basis in Property X for Omega LLC4. Tax consequences for Gamma LLC in 20245. Any required amended returns

[+0.1] For correctly identifying that the exchange initially appears to qualify under Section 1031 (proper use of qualified intermediary, identification within 45 days, completion within 180 days) but involves a related party transaction under Section 1031(f)[+0.1] For correctly calculating Omega's realized gain of $5M ($8M FMV minus $3M adjusted basis)[+0.05] For correctly identifying the net mortgage difference ($2M assumed minus $1.5M relieved) resulting in $0.5M of mortgage boot received[+0.1] For correctly applying Section 1031(b) to recognize gain to the extent of boot received ($0.5M)[+0.1] For correctly applying Section 1(h)(6) to characterize the $0.5M recognized gain as unrecaptured Section 1250 gain subject to a maximum 25% tax rate, rather than ordinary income[+0.1] For correctly calculating Omega's initial basis in Property X as $3M using the formula: $3M (adjusted basis of relinquished property) - $0.5M (net mortgage relief) + $0.5M (gain recognized)[+0.15] For correctly identifying that Gamma's sale within 2 years triggers Section 1031(f)(1), disqualifying the original exchange from non-recognition treatment, with citation to Rev. Rul. 2007-72 or Ocmulgee Fields, Inc. v. Commissioner[+0.1] For correctly determining that Omega must recognize its deferred gain of $4.5M ($5M total gain minus $0.5M previously recognized) in 2023, requiring an amended return[+0.1] For correctly calculating Gamma's basis in the commercial building as $8M (FMV at time of exchange per Section 1031(f)) and the resulting gain of $0.5M on the sale for $8.5M[+0.1] For correctly applying the installment sale method under Section 453 to Gamma's gain, calculating the 2024 recognized gain as $0.12M [$2M (cash received) ÷ $8.5M (total sale price) × $0.5M (total gain)][+0.1] For correctly identifying that Omega's amended return must report the full $5M gain, properly characterized as $2M unrecaptured Section 1250 gain under Section 1(h)(6) and $3M Section 1231 gain


Question: Parkview Partners LP (a partnership for tax purposes) owns three investment properties:- Property X: Office building with adjusted basis of $3.5M, FMV $8M, acquired in 2008, with $1.2M Section 1250 recapture potential- Property Y: Vacant land with adjusted basis of $1M, FMV $1.5M, acquired in 2015- Property Z: Retail center with adjusted basis of $4M, FMV $5M, acquired in 2019, with $600K Section 1250 recapture potentialOn March 1, 2023, Parkview transfers Property X to a qualified intermediary who sells it for $8M to an unrelated buyer. On March 30, Parkview identifies three potential replacement properties:1. Property A: Office building owned by Skyline LLC (50% owned by a Parkview partner's spouse) - FMV $7.5M2. Property B: Retail center - FMV $4M3. Property C: Mixed-use building - FMV $6MOn April 15, Parkview acquires Property A for $7.5M cash and a $1M note payable to Skyline LLC over 5 years with 5% interest.On July 15, Parkview acquires Property B for $4M cash.On September 10, 2023, Skyline LLC sells Property X (which it acquired from the buyer of Parkview's original property through an unrelated transaction) for $8.2M.On January 15, 2024, Parkview sells Property Y for $1.5M.On February 1, 2025, Parkview sells Property B for $4.5M.Required:1. Calculate Parkview's recognized gain in 2023, including the proper character of the gain.2. Calculate the basis in Properties A and B.3. Determine if the related party rules under IRC Section 1031(f) apply to any of these transactions and explain why or why not.4. Calculate Parkview's recognized gain in 2025 from the sale of Property B.5. Identify all required tax forms for proper reporting of these transactions.

[+0.10] For correctly calculating the realized gain on Property X as $4.5M ($8M FMV - $3.5M adjusted basis)[+0.10] For correctly identifying that the $1M note constitutes boot under Treasury Regulation 1.1031(d)-2[+0.10] For correctly calculating the recognized gain in 2023 as $1M (limited to boot received)[+0.10] For correctly characterizing the $1M recognized gain as unrecaptured Section 1250 gain under Section 1(h)(6)[+0.10] For correctly calculating Property A's basis as $2,934,783:- Allocated portion of Property X basis: $3.5M × ($7.5M/$11.5M) = $2,282,609- Plus gain recognized allocated to Property A: $1M × ($7.5M/$11.5M) = $652,174[+0.10] For correctly calculating Property B's basis as $1,565,217:- Allocated portion of Property X basis: $3.5M × ($4M/$11.5M) = $1,217,391- Plus gain recognized allocated to Property B: $1M × ($4M/$11.5M) = $347,826[+0.10] For correctly analyzing the related party rules under IRC Section 1031(f):- Identifying that Skyline LLC is a related party per Section 1031(f)(3) due to the 50% ownership by a partner's spouse- Correctly applying Section 1031(f)(4) and Rev. Rul. 2002-83 to determine that the "cashing out" by the related party (Skyline LLC selling Property X within 2 years) creates a strong risk that the IRS would disqualify the exchange- Explaining that if the transaction was structured with a principal purpose of tax avoidance, the entire exchange could be disqualified under Section 1031(f)(4)- Noting that if the exchange is disqualified, Parkview would recognize the full $4.5M gain in 2023[+0.10] For correctly calculating the 2025 recognized gain on Property B as $2,934,783 ($4.5M - $1,565,217)[+0.10] For correctly characterizing the 2025 gain as long-term capital gain[+0.10] For correctly identifying all required tax forms:- Form 8824 for the like-kind exchange- Form 6252 for the installment sale portion (the $1M note)- Form 8275-R for disclosing the related party transaction- Form 1065 (Partnership Return) with appropriate Schedules K-1[+0.10] For correctly applying the installment sale rules under Section 453 to the boot portion of the exchange, following Treasury Regulation 1.1031(k)-1(j)(2)


Question: ABC Partnership owns three commercial properties:- Property X: Basis $2M, FMV $5M, acquired 2012- Property Y: Basis $3M, FMV $4M, acquired 2015- Property Z: Basis $4M, FMV $3.5M, acquired 2018The partnership has three equal partners: Adam, Barbara, and Charles. Their outside bases are $3M, $3.5M, and $2.5M respectively.In 2023, the following transactions occur:1. ABC exchanges Property X for Property Q (FMV $4.7M) plus a note for $300K paying 5% interest annually for 5 years.2. One month after the exchange, Charles sells his partnership interest to Diana for $4.2M.3. The partnership has a valid Section 754 election in effect.4. The partnership agreement specially allocates 50% of all real estate gains to Adam, with remaining gains split equally.5. Property Q is subject to $1M of qualified nonrecourse financing under Section 465.Required:a) Determine the amount and character of gain recognized by the partnership on the exchange.b) Calculate each partner's distributive share of the gain.c) Calculate Charles's gain on the sale of his partnership interest and explain the Section 751 implications.d) Calculate Diana's initial basis in her partnership interest.e) Determine the Section 743(b) adjustment amount and explain how it will be allocated.f) Explain how the installment note impacts the partnership's basis in Property Q.

Part A: Partnership Gain on Exchange (0.20 points)[+0.05] For correctly identifying the amount realized as $5M ($4.7M property + $300K note)[+0.05] For correctly calculating the realized gain as $3M ($5M - $2M basis)[+0.05] For correctly applying Section 1031 to recognize only $300K of gain (the boot amount)[+0.05] For correctly identifying the character of gain under Section 1250(d)(4) and Section 1(h)Part B: Partners' Distributive Shares (0.15 points)[+0.05] For correctly applying the special allocation of 50% to Adam ($150K)[+0.05] For correctly calculating Barbara's share as $75K (25% of total gain)[+0.05] For correctly calculating Charles's share as $75K (25% of total gain)Part C: Charles's Sale of Partnership Interest (0.20 points)[+0.05] For correctly calculating Charles's total gain as $1.7M ($4.2M - $2.5M)[+0.05] For correctly identifying the installment note as a Section 751 "hot asset"[+0.05] For correctly calculating Charles's ordinary income as $75K (25% of $300K note)[+0.05] For correctly identifying the remaining $1.625M as capital gainPart D: Diana's Initial Basis (0.10 points)[+0.05] For correctly stating Diana's initial basis as $4.2M under Section 742[+0.05] For correctly adjusting Diana's basis for assumed liabilities under Section 752(d)Part E: Section 743(b) Adjustment (0.20 points)[+0.05] For correctly calculating Charles's share of inside basis as $2.9M[+0.05] For correctly calculating the Section 743(b) adjustment as $1.3M[+0.05] For correctly explaining the Section 755 allocation requirements[+0.05] For correctly explaining the purpose of the basis adjustment (to prevent double taxation)Part F: Installment Note Impact (0.15 points)[+0.05] For correctly identifying the installment note as boot under Section 453(f)(6)[+0.05] For correctly calculating the partnership's basis in Property Q as $2M[+0.05] For correctly explaining how future note payments affect basis under Rev. Rul. 72-456Total: 1.0 point


Question: TechMed Inc. develops and sells specialized medical diagnostic software with both cloud-based and downloadable components. The software includes:1. A downloadable interface program that healthcare providers install locally2. Cloud-based diagnostic algorithms accessed via subscription3. Digital medical reference materials updated monthly4. Optional training services delivered remotelyThe company sells to a multi-state hospital system with facilities in Pennsylvania, Tennessee, Illinois, and Colorado. The contract specifies that the software will be used 30% in Pennsylvania, 25% in Tennessee, 25% in Illinois, and 20% in Colorado. The total contract price is $1,200,000, allocated as follows:- Downloadable interface: $300,000- Cloud-based algorithms: $500,000- Digital reference materials: $200,000- Training services: $200,000Analyze the sales and use tax implications of this transaction. Your answer should:1. Determine the taxability of each component in each state2. Apply any relevant medical exemptions3. Calculate the proper apportionment of tax by state4. Identify required documentation for compliance5. Calculate the total sales tax dueInclude specific citations to relevant state statutes, regulations, and rulings in your analysis.

[+0.15] For correctly classifying the taxability of each component in each state with proper citations:- Pennsylvania: Downloadable interface and digital materials taxable under 72 P.S. § 7201(m); cloud components non-taxable per Illinois General Information Letter ST 17-0006; training services non-taxable per 61 Pa. Code § 60.9(c)- Tennessee: All software components taxable under Tenn. Code Ann. § 67-6-102(93) and § 67-6-233; training potentially exempt under Tenn. Code Ann. § 67-6-329- Illinois: Downloadable software taxable under 35 ILCS 120/2-25; cloud components non-taxable per Illinois General Information Letter ST 17-0006; digital materials taxable under 86 Ill. Adm. Code 130.2105- Colorado: Downloadable software taxable under Colo. Rev. Stat. § 39-26-102(15); cloud components non-taxable per Colorado FYI Sales 89[+0.15] For correctly analyzing medical exemptions with proper citations:- Pennsylvania: Software excluded from medical exemption under 72 P.S. § 7204(17) unless integral to exempt equipment- Tennessee: Limited exemption under Tenn. Code Ann. § 67-6-314 and Tennessee Sales and Use Tax Rule 1320-05-01-.63 for software exclusively for diagnosis- Illinois: Potential exemption under 35 ILCS 120/2-5(11) if used directly in patient care per 86 Ill. Admin. Code Section 130.1935- Colorado: Medical exemptions under Colorado Regulation 39-26-717 and Colorado FYI Sales 71, but generally not applicable to standalone software[+0.25] For correctly calculating apportioned taxable amounts by state:- Pennsylvania (30%): $150,000 taxable ($90,000 downloadable + $60,000 digital materials)- Tennessee (25%): $250,000 taxable ($75,000 downloadable + $125,000 cloud + $50,000 digital)- Illinois (25%): $125,000 taxable ($75,000 downloadable + $50,000 digital materials)- Colorado (20%): $60,000 taxable ($60,000 downloadable)[+0.15] For correctly identifying documentation requirements:- Pennsylvania: Form REV-1220 for multiple points of use per 61 Pa. Code § 60.19- Tennessee: Multiple points of use documentation per Tennessee Rule 1320-05-01-.129 regarding sourcing- Illinois: Form ST-587 for multiple points of use per 86 Ill. Adm. Code 130.605- Colorado: DR 1312 - Statement of Multiple Points of Use per 1 CCR 201-4, Rule 39-26-102.13- Contract with explicit usage percentages and separate invoicing for all states[+0.30] For correctly calculating total sales tax due:- Pennsylvania: $9,000 (6% of $150,000)- Tennessee: $17,500-$24,375 (7% state rate plus applicable local tax of 1.5-2.75% on $250,000)- Illinois: $7,813 (6.25% of $125,000)- Colorado: $1,740 plus applicable local taxes (2.9% state rate on $60,000 plus local taxes)- Total sales tax due: $36,053-$42,928 plus additional local taxes in Colorado


Question: A technology entrepreneur had the following tax situation:In 2020, they converted their California S-Corporation (formed in 2015) to an LLC through a statutory conversion under California Corporations Code Section 1150. At the time of conversion, the company had a fair market value of $10 million and a basis of $500,000. In 2021, while still a California resident, they sold the LLC interests to a private equity firm for $15 million, structured as $5 million upfront and $10 million in installment payments over 5 years ($2 million per year for 5 years).In January 2022, before receiving any installment payments, they established residency in Washington state. They severed all California ties except for a minority investment in a California-based venture capital fund that generates approximately $50,000 in annual income.In 2022, they received the first $2 million installment payment while a Washington resident.Required: Analyze the California tax implications of this situation, including the entity conversion, installment sale treatment, and residency change. Cite relevant California statutes, regulations, and case law to support your analysis. Calculate the California taxable income for 2022 and explain the ongoing California tax obligations for future installment payments.

[+0.10] For correctly identifying that the statutory conversion from S-Corporation to LLC is generally not a taxable event if it qualifies as an "F reorganization" under IRC Section 368(a)(1)(F) as incorporated into California law by R&TC Section 17024.5[+0.10] For identifying potential built-in gains tax issues under R&TC Section 23809 if the S-Corporation had converted from a C-Corporation within the recognition period[+0.15] For correctly applying installment sale treatment under R&TC Section 17551 (which incorporates IRC Section 453) and calculating the gross profit percentage of 96.7% [($15M - $500K)/$15M][+0.15] For correctly citing FTB Legal Ruling 2003-1 which establishes that installment payments received while a nonresident, but from the sale of intangible property that occurred while a resident, remain taxable by California[+0.10] For discussing the Appeal of Bragg (2003-SBE-002) which established that the character and taxability of installment payments are determined when the sale occurs, not when payments are received[+0.15] For analyzing the impact of the Metropoulos v. Franchise Tax Board case (Los Angeles County Superior Court, July 2021, Case No. 19STCV44815) and explaining that while Judge Cowan ruled against California's ability to tax installment payments received by former residents, this decision is currently under appeal to the California Court of Appeal, Second Appellate District, and has not yet established binding precedent throughout California[+0.10] For correctly calculating the California taxable portion of the 2022 installment payment as $1,933,333 (96.7% of $2 million) under current FTB guidance[+0.05] For identifying that the $50,000 income from the California venture capital fund creates California-source income for a nonresident under R&TC Section 17952[+0.05] For explaining the requirement to file California Form 540NR as a nonresident with California-source income[+0.05] For discussing the potential application of market-based sourcing rules under R&TC Section 25136 if applicable to the business activities


Question: TechSolutions Inc. is a technology company headquartered in Palo Alto, California with employees working remotely in Texas, New York, and Florida. The company:1) Sells cloud-based software to businesses nationwide2) Provides consulting services performed remotely3) Sells physical products through its own website and through Amazon Marketplace4) Has inventory stored in Amazon fulfillment centers in California, Texas, and New JerseyFor tax year 2023, analyze the following scenarios:a) A $50,000 software license sold to a business with headquarters in San Diego but users in multiple states including New York, Texas, and Oregon. The software is delivered electronically and includes both standard modules and some customization.b) A $75,000 consulting contract where work is performed remotely by employees in Texas for a client in Los Angeles. The deliverables include both advisory services and a detailed implementation guide in PDF format.c) Physical products valued at $25,000 shipped from an Amazon fulfillment center in Ontario, CA to customers in Sacramento. Three months after the initial shipment, Sacramento County increases its district tax rate from 1.25% to 1.5%.d) A 12-month cloud service subscription sold to a business customer in Fresno for $36,000, billed quarterly. The subscription begins on April 1, 2023, and Fresno County increases its district tax rate from 0.975% to 1.225% effective July 1, 2023.For each scenario:1. Determine whether California sales/use tax applies2. Identify the correct tax rate(s) and jurisdiction(s)3. Calculate the tax due (if any)4. Explain which party has the legal obligation to collect and remit the tax5. Cite the specific California Revenue and Taxation Code sections or regulations that support your analysis

Part A: Software License Analysis [0.25 points][+0.05] For correctly identifying that electronically delivered software is generally taxable in California under Regulation 1502(f)(1)(D)[+0.05] For applying the "true object" test to the customization component and determining if it qualifies as a "custom program" under Regulation 1502(f)(2)[+0.05] For correctly sourcing the sale to San Diego (customer's California location) under destination-based sourcing rules[+0.05] For calculating the correct tax amount using San Diego's combined state and local tax rate (7.75% × taxable portion)[+0.05] For identifying TechSolutions as the party responsible for collecting and remitting the tax under RTC Section 6203Part B: Consulting Services Analysis [0.25 points][+0.05] For correctly identifying that the consulting services are generally not subject to California sales tax under Regulation 1501[+0.05] For applying the "true object" test to determine if the PDF implementation guide constitutes taxable tangible personal property[+0.05] For correctly determining that the benefit of the service is received in Los Angeles[+0.05] For calculating the correct tax amount (if any) using Los Angeles County's combined tax rate (9.5%)[+0.05] For citing RTC Section 6010.9 regarding electronic transmission of documentsPart C: Marketplace Sales Analysis [0.25 points][+0.05] For correctly identifying that physical products are subject to California sales tax[+0.05] For correctly sourcing the sale to Sacramento under destination-based sourcing rules in Regulation 1802[+0.05] For calculating the correct tax amount using Sacramento's pre-increase combined tax rate (7.25% + 1.25% = 8.5%)[+0.05] For identifying Amazon as the party responsible for collecting and remitting the tax under the Marketplace Facilitator Act (RTC Section 6042)[+0.05] For explaining that the subsequent tax rate increase does not affect the already completed transactionPart D: Subscription Services with Rate Change [0.25 points][+0.05] For correctly identifying that cloud-based software services are generally taxable in California under Regulation 1502[+0.05] For correctly applying CCR Title 18, Section 1821(b) regarding tax rate changes during billing periods[+0.05] For calculating the correct tax for Q2 (April-June) using the pre-increase rate (7.25% + 0.975% = 8.225% on $9,000)[+0.05] For calculating the correct tax for Q3-Q4 using the post-increase rate (7.25% + 1.225% = 8.475% on $18,000)[+0.05] For identifying TechSolutions as the party responsible for collecting and remitting the tax under RTC Section 6203