Cambridge, Inc. conducts business in states X and Y. This year, its before-tax income was $150,000. Below is information regarding its sales, payroll, and property factors in both states.
Both states apply an equally-weighted three-factor formula to apportion income. State X has a 10% corporate income tax and state Y has a 5% corporate income tax. Compute the state tax savings if Cambridge could relocate $100,000 of property and $50,000 of payroll from state X to state Y.

Question

Quizplus · Accepted Answer

By relocating $100,000 of property and $50,000 of payroll from state X to state Y, Cambridge reduces its tax liability in the higher-tax state (X) and increases it in the lower-tax state (Y). The savings is calculated by the difference in tax rates applied to the change in apportionment.