Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following: $$\begin{array} { l r r r }
& \text { State X } & \text { State Z } & \text { T otals } \
\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 3,000,000 \
\text { Property } & 200,000 & 2,300,000 & 2,500,000 \
\text { Payroll } & 100,000 & 1,900,000 & 2,000,000
\end{array}$$ X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

Question

Chipper Corporation realized $1,000,000 taxable income from the sales of its products in States X and Z. Chipper's activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper's sales, payroll, and property among the states include the following: $$\begin{array} { l r r r } 
& \text { State X } & \text { State Z } & \text { T otals } \
\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 3,000,000 \
\text { Property } & 200,000 & 2,300,000 & 2,500,000 \
\text { Payroll } & 100,000 & 1,900,000 & 2,000,000
\end{array}$$ X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper's taxable income is apportioned to X?

Quizplus · Accepted Answer

Since Chipper Corporation only has nexus for income tax purposes in State Z, the state of its incorporation, and not in State X, all of its taxable income would be apportioned to State Z. Nexus is a legal term that refers to the sufficient physical presence of a business in a state, which allows that state to tax the business. Without nexus in State X, Chipper Corporation is not subject to income tax there, regardless of the sales or any other factor.

Chipper Corporation Realized $1,000,000 Taxable Income from the Sales of Its