A firm operates in a state that has a corporate income tax rate of 5% and is deductible from the federal taxes. If the incremental federal tax is 34%, then the combined effective tax rate is 35.9%

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Quizplus · Accepted Answer

The combined effective tax rate is calculated by adding the state tax rate to the federal tax rate after accounting for the deductibility of state taxes. The formula is: Combined Rate = State Rate + Federal Rate * (1 - State Rate). Here, it would be 5% + 34% * (1 - 5%) = 5% + 32.3% = 37.3%.

A Firm Operates in a State That Has a Corporate