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: $\begin{array}{cccc}
& \text { State A } & \text { State B } & \text { T otals } \
\text { Sales } & \$ 200,000 & \$ 600,000 & \$ 800,000
\end{array}$ $$\begin{array} { l l l l }
\text { Payroll } & 100,000 & 50,000 & 150,000 \
\text { Property } & 200,000 & 50,000 & 250,000
\end{array}$$ How much more (less) of Boot's income is subject to State A income tax if, instead of using an equally weighted three-factor apportionment formula, State 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: $\begin{array}{cccc} 
& \text { State A } & \text { State B } & \text { T otals } \
\text { Sales } & \$ 200,000 & \$ 600,000 & \$ 800,000
\end{array}$ $$\begin{array} { l l l l } 
\text { Payroll } & 100,000 & 50,000 & 150,000 \
\text { Property } & 200,000 & 50,000 & 250,000
\end{array}$$ How much more (less) of Boot's income is subject to State A income tax if, instead of using an equally weighted three-factor apportionment formula, State A uses a formula with a double-weighted sales factor?

Quizplus · Accepted Answer

Using the equally weighted three-factor formula, the apportionment percentages for State A are calculated by averaging the percentages of sales, payroll, and property in State A. Sales in State A are 25% ($200,000 / $800,000), payroll is 66.67% ($100,000 / $150,000), and property is 80% ($200,000 / $250,000). The average of these percentages is 57.22%. Therefore, 57.22% of Boot's income is apportioned to State A, which is $114,440 ($200,000 * 57.22%).If State A uses a double-weighted sales factor, the formula changes. The sales factor is now counted twice, making the formula effectively out of four parts: sales (twice), payroll, and property. The new sales percentage (still 25%) is counted twice, so the calculation is (25% + 25% + 66.67% + 80%) / 4 = 49.17%. Therefore, 49.17% of Boot's income is apportioned to State A, which is $98,340 ($200,000 * 49.17%).The difference between the two methods is $114,440 - $98,340 = $16,100, meaning $16,100 less of Boot's income is subject to State A income tax under the double-weighted sales factor formula.

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