Assignment Problem: Lexerd Company (referred to herein as Lexerd or the "Company")
Facts:
Company develops prewritten computer software programs for architects and engineers.
Licenses the software, as well as, provides upgrades and technical services to clients. The company's clients are located throughout the U.S, with a large concentration on the East Coast and Southwest.
Corporate headquarters are located in San Francisco, California. Clients order software online and their orders are approved by personnel at the San Francisco HQ.
Satellite offices are located in Illinois, New York, and Virginia - full-time software engineers, sales representatives, and a small number of administrative staff are employed at these offices.
Several full-time software engineers also have "home offices" in Arizona, Florida, Georgia, Pennsylvania, and Texas; these are not company business locations.
In the current year, Lexerd employees attended trade shows in Arizona, California, Florida, Georgia, Indiana, North Carolina, and Texas. The employees exhibited Lexerd's products at these trade shows and also took orders for software programs.
Lexerd employees also occasionally conduct on-site training seminars and provide consulting services for their largest clients.
Questions:
Q1. Based on the facts presented above, where do you think Lexerd Company would have substantial nexus for corporate income tax purposes? Explain.
Q2. Does a state's "doing business" statute have any relevance in your determination of substantial nexus? Why?
Q3. What additional information would you need to determine if Lexerd Company has taxable nexus in other states (in addition to those in your answer to Question (A), above?
Q4. Assuming Lexerd's business activity in a state where it has no physical presence is limited to licensing software to customers. Do you think this activity, by itself, creates nexus for Lexerd in that state? Explain.
Q5. Discuss the relevance of "home offices" and how a telecommuting employee(s) may potentially create nexus for Lexerd.
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