Verdi Inc. has before-tax income of $500,000. Verdi operates entirely in state Q, which has a 10% corporate income tax. Compute Verdi's combined federal and state tax burden as a percentage of its before-tax income.

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Verdi Inc.'s state tax burden is 10% of $500,000, which equals $50,000. The federal corporate tax rate is 21%, applied to the before-tax income of $500,000, resulting in $105,000. The combined tax is $50,000 (state) + $105,000 (federal) = $155,000. The combined tax burden as a percentage of before-tax income is $155,000 / $500,000 = 31%. However, the state tax is deductible from the federal taxable income. Therefore, the federal taxable income becomes $500,000 - $50,000 = $450,000. The federal tax on this amount is 21% of $450,000 = $94,500. The total tax is $94,500 (federal) + $50,000 (state) = $144,500. The combined tax burden percentage is $144,500 / $500,000 = 28.9%.

Verdi Inc Has Before-Tax Income of $500,000