Sharon Inc. is headquartered in State X and owns 100 percent of Carol, Josey, an

Question

Sharon Inc. is headquartered in State X and owns 100 percent of Carol, Josey, and Janice Corps, which form a single unitary group. Assume sales operations are within the solicitation bounds of Public Law 86-272. Each of the corporations has operations in the following states:

Compute the following for State X assuming a tax rate of 15 percent. (Use an equally weighted three-factor apportionment. Do not round intermediate calculations. Round apportionment factors to 4 decimal places. Round other answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. Calculate the State X apportionment factor for Sharon Inc., Carol Corp., Josey Corp., and Janice Corp.

b. Calculate the business income apportioned to State X.

c. Calculate the taxable income for State X for each company.

d. Determine the tax liability for State X for the entire group.

Domicile State Sharon Inc.
State X
(throwback) Carol Corp
State Y
(throwback) Josey Corp
State Z
(nonthrowback) Janice Corp
State Z
(nonthrowback) Dividend income $ 1,700 $ 475 $ 385 $ 660 Business income $ 58,200 $ 34,250 $ 17,800 $ 17,300 Sales: State X $ 76,000 $ 19,000 $ 17,900 $ 15,400 State Y $ 48,250 $ 8,000 State Z $ 26,800 $ 35,750 $ 10,100 State A $ 19,500 State B $ 16,800 $ 19,500 Property: State X $ 74,250 $ 22,400 $ 18,200 State Y $ 87,750 State Z $ 42,750 $ 38,250 State A $ 52,250 Payroll: State X $ 16,600 $ 12,600 State Y $ 41,000 State Z $ 6,000 $ 10,700 State A $ 18,500

Explanation / Answer

a) Calculation of State X apportionment factor for Sharon Inc., Carol Corp., Josey Corp., and Janice Corp. is shown as follows:- (Amount in $)

(76,000/112,300) = 0.6768

** Josey corp. has no nexus in state X because it has no property or payroll there (i.e. no physical presence). Therefore for calculating apportionment factor, Josey corp. will not be considered.

Apportionment factor is calculated as follows:-

Total factor for three corporations = 2.2638+0.6405+0.6646 = 3.5689

Equally weighted three factor Apportionment = 3.5689/3 = 1.1896

Apportionment Factor for Sharon Inc. = 1.1896*(2.2638/3.5689) = 0.7546

Apportionment Factor for Carol Inc. = 1.1896*(0.6405/3.5689) = 0.2135

Apportionment Factor for Janice Inc. = 1.1896*(0.6646/3.5689) = 0.2215

b) Calculation of business Income apportioned to State X (Amount in $)

The Business income apportioned to State X is $55,062 ($43,918+$7,312+$3,832).

c) Calculation of Taxable Income for each company (Amount in $)

d) Total Taxable Income for entire group = $45,438+$7,312+$3,832 = $56,582

Tax rate = 15%

Tax Liability for State X for the entire group = Total Taxable Income for entire group*Tax rate

= $56,582*15% = $8,487

Sharon Inc. Carol Corp. Josey Corp. Janice Corp. Sales 1)State X 76,000 19,000 17,900 15,400 2)Total (76,000+19,500+16,800) = 112,300 (19,000+48,250+26,800) = 94,050 (17,900+8,000+35,750) = 61,650 (15,400+10,100+19,500) = 45,000 3)Factor (1/2)

(76,000/112,300) = 0.6768

(19,000/94,050) = 0.2020 (17,900/61,650) = 0.2903 (15,400/45,000) = 0.3422 Property 4)State X 74,250 22,400 0 18,200 5)Total (74,250+52,250) = 126,500 (22,400+87,750) = 110,150 42,750 (18,200+38,250) = 56,450 6)Factor (4/5) (74,250/126,500) = 0.5870 (22,400/110,150) = 0.2034 0 (18,200/56,450) = 0.3224 Payroll 7)State X 16,600 12,600 0 0 8)Total 16,600 (12,600+41,000) = 53,600 6,000 (10,700+18,500) = 29,200 9)Factor (7/8) (16,600/16,600) = 1.00 (12,600/53,600) = 0.2351 0 0.00 Total (3+6+9) (0.6768+0.5870+1.00) = 2.2638 (0.2020+0.2034+0.2351) = 0.6405 0** (0.3422+0.3224+0.00) = 0.6646 Apportionment Factor 0.7546 0.2135 0.2215

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