D Corporation operates in two states, Y and Z.Both states impose a state income tax.For the current year, D has taxable income of $5,000,000 (after state adjustments).Such income consists of $4,000,000 of business income and $1,000,000 of nonbusiness income attributable solely to State Y.D conducts sufficient activities in both states to create nexus.Both states allocate nonbusiness income and apportion business income using a three-factor formula in which sales, payroll, and property are equally weighted.The current year factors are as follows: $\begin{array}{lll}&\text { State } Y&\text { State } Z\
\text { Sales } & 80 \% & 20 \% \
\text { Property } & 40 \% & 60 \% \
\text { Payroll } & 60 \% & 40 \%
\end{array}$ What is D's State Y taxable income for the current year.
A)$5,000,000
B)$1,000,000
C)$3,400,000
D)$2,400,000
E)$2,600,000

Question

Quizplus · Accepted Answer

To calculate D's State Y taxable income, we first determine the apportionment percentage for State Y using the three-factor formula (sales, property, payroll). The formula is: (Sales% + Property% + Payroll%) / 3. For State Y, this is: (80% + 40% + 60%) / 3 = 180% / 3 = 60%. The business income apportioned to State Y is 60% of $4,000,000 = $2,400,000. The nonbusiness income attributable solely to State Y is $1,000,000. Therefore, D's State Y taxable income is $2,400,000 (business income) + $1,000,000 (nonbusiness income) = $3,400,000.

D Corporation Operates in Two States, Y and Z What Is D's State Y Taxable Income for the Current