Parent Corporation owns all of the stock of Junior Corporation, a Delaware passive investment company. Parent operates strictly in nonunitary State B, which levies a 9% income tax. This year, Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent. In which state(s) will the interest income create an income tax liability?

Question

Quizplus · Accepted Answer

Since Junior Corporation is a passive investment company and operates in Delaware, its portfolio interest income is typically not subject to state income tax in Delaware. Parent Corporation operates in State B, which is nonunitary with Junior, meaning the income from Junior does not directly impact Parent's state tax liability in State B. Therefore, the interest income does not create an income tax liability in either state.

Parent Corporation Owns All of the Stock of Junior Corporation