XYZ Corp realized $1.5 million of taxable income from the sales of its products
ID: 2448339 • Letter: X
Question
XYZ Corp realized $1.5 million of taxable income from the sales of its products in State A and State B. XYZ is taxable by both states, and its gross sales, payroll, and property are allocated between the states as follows:
State A State B Total
Gross Sales $2,000,000 $2,000,000 $4,000,000
Payroll 1,500,000 0 1,500,000
Property 2,500,000 0 2,500,000
Income Tax Rate 10% 5%
State A allows a company to elect either an equal weighted three factor apportionment method or a double weighted sales factor in a three factor apportionment method. Which method will allow XYZ to apportion the smallest amount of income to State A?
Explanation / Answer
SOLUTION :
equal weighted three factor apportionment method
(2000000/4000000)
0.5
(1500000/1500000)
1
(2500000/2500000)
1
TOTAL
2.5
AVERAGE (2.5/3)
0.83
TAXABLE INCOME
1500000
TAXABLE INCOME APPORTIONED TO STATE A
1250000
TAX AT 10%
125000
double weighted sales factor in a three factor apportionment method.
(2000000/4000000)*2
1
(1500000/1500000)
1
(2500000/2500000)
1
TOTAL
3
AVERAGE (3/4)
0.75
TAXABLE INCOME
1500000
TAXABLE INCOME APPORTIONED TO STATE A
1125000
TAX AT 10%
112500
Conclusion : A double weighted sales factor in a three factor apportionment method will allow XYZ to apportion the smallest amount of income to State A.
equal weighted three factor apportionment method
(2000000/4000000)
0.5
(1500000/1500000)
1
(2500000/2500000)
1
TOTAL
2.5
AVERAGE (2.5/3)
0.83
TAXABLE INCOME
1500000
TAXABLE INCOME APPORTIONED TO STATE A
1250000
TAX AT 10%
125000
double weighted sales factor in a three factor apportionment method.
(2000000/4000000)*2
1
(1500000/1500000)
1
(2500000/2500000)
1
TOTAL
3
AVERAGE (3/4)
0.75
TAXABLE INCOME
1500000
TAXABLE INCOME APPORTIONED TO STATE A
1125000
TAX AT 10%
112500
Conclusion : A double weighted sales factor in a three factor apportionment method will allow XYZ to apportion the smallest amount of income to State A.
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