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. $$\begin{array} { | l | r | r | r | }
\hline & { X } & { Y } & { \text { Total } } \
\hline \text { Gross receipts/sales } & \$ 325,000 & \$ 75,000 & \$ 400,000 \
\hline \text { Payroll } & 90,000 & 10,000 & 100,000 \
\hline \text { Property } & 200,000 & 50,000 & 250,000 \
\hline
\end{array}$$ 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

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. $$\begin{array} { | l | r | r | r | } 
\hline & { X } & { Y } &  { \text { Total } } \
\hline \text { Gross receipts/sales } & \$ 325,000 & \$ 75,000 & \$ 400,000 \
\hline \text { Payroll } & 90,000 & 10,000 & 100,000 \
\hline \text { Property } & 200,000 & 50,000 & 250,000 \
\hline
\end{array}$$ 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.

Quizplus · Accepted Answer

Relocating $100,000 of property and $50,000 of payroll from state X to state Y changes the apportionment factors, reducing the tax liability in the higher-tax state X and increasing it in the lower-tax state Y, resulting in a tax savings of $2,250.

Cambridge, Inc Both States Apply an Equally-Weighted Three-Factor Formula to Apportion Income