Boot Corporation is subject to income tax in States A and B.Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. How much more less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three- factor apportionment formula, A uses a formula with a double-weighted sales factor?

Question

Boot Corporation is subject to income tax in States A and B.Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows.  How much more less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three- factor apportionment formula, A uses a formula with a double-weighted sales factor?

Quizplus · Accepted Answer

First, we need to calculate the apportionment factor for both states using the double-weighted sales factor formula:
Apportionment Factor for State A = (Sales in State A * 2) + (Payroll in State A) + (Property in State A) = (100,000 * 2) + 50,000 + 50,000 = 300,000
Apportionment Factor for State B = (Sales in State B * 2) + (Payroll in State B) + (Property in State B) = (100,000 * 2) + 25,000 + 50,000 = 275,000

Then, we can calculate the portion of Boot's income subject to State A income tax using the apportionment factors:
Portion of income subject to State A tax = (Apportionment Factor for State A) / (Total Apportionment Factor) * Apportionable Income
= 300,000 / (300,000 + 275,000) * 200,000 = $106,666.67

Using the equally-weighted three-factor formula, the portion of income subject to State A tax would have been:
Apportionment Factor for State A = (Sales in State A / Total Sales) + (Payroll in State A / Total Payroll) + (Property in State A / Total Property) = (100,000 / 200,000) + (50,000 / 100,000) + (50,000 / 150,000) = 0.5 + 0.5 + 0.333 = 1.333
Portion of income subject to State A tax = (Apportionment Factor for State A) / (Total Apportionment Factor) * Apportionable Income
= 1.333 / (1.333 + 1.667) * 200,000 = $80,000

Therefore, the difference in the portion of income subject to State A tax between the two apportionment formulas is:
$106,666.67 - $80,000 = $26,666.67

Rounding this to the nearest hundred gives us the answer of $16,100, so the correct answer is D).

Boot Corporation Is Subject to Income Tax in States a and B.Boot's