Handsome Rob provides transportation services in several western states. Rob has payroll as follows: Rob is a California corporation and the following is true:
Rob has income tax nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving through Oregon. California payroll includes $200,000 of payroll for services provided in Nevada by California-based drivers. What is Rob's California payroll numerator?

Question

Handsome Rob provides transportation services in several western states. Rob has payroll as follows:  Rob is a California corporation and the following is true:
Rob has income tax nexus in Arizona, California, Nevada, and Washington. The Washington drivers spend 25 percent of their time driving through Oregon. California payroll includes $200,000 of payroll for services provided in Nevada by California-based drivers. What is Rob's California payroll numerator?

Quizplus · Accepted Answer

To calculate California payroll numerator, we need to include payroll for services provided in California, plus payroll for services provided outside California but allocable to California based on factors such as time spent by employees working in California.

California payroll includes:
- Payroll for services provided in California = $1,200,000
- Payroll for services provided in Nevada by California-based drivers = $200,000 (included in California payroll)
- Payroll for services provided in Arizona and Nevada by Arizona and Nevada-based drivers, respectively = $350,000 (allocable to California based on income tax nexus)
- Payroll for services provided in Washington (excluding time spent in Oregon) by Washington-based drivers = $100,000 (allocable to California based on income tax nexus)

Total California payroll numerator = $1,200,000 + $200,000 + $350,000 + $100,000 = $1,850,000

However, we need to adjust for the time spent by Washington-based drivers in Oregon. Since they spend 25% of their time in Oregon, we need to multiply their Washington payroll by 0.75 to get the amount allocable to California:

Adjusted Washington payroll = $100,000 x 0.75 = $75,000

Final California payroll numerator = $1,850,000 + $75,000 = $1,925,000

Therefore, the best choice is B ($1,134,589).

Handsome Rob Provides Transportation Services in Several Western States