Cambridge, Inc

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.

A) $2,250
B) $12,563
C) $11,532
D) $9,094Before any shifting, X tax = $12,563 = 10% * $150,000 * (325/400 + 90/100 + 200/250) /3. Y tax = $1,219 = 5% * $150,000 * (75/400 + 10/100 * 50/250) /3. Total state tax before shifting = $13,782. After shifting, X tax = $8,063 = 10% * $150,000 * (325/400 + 40/100 + 100/250) /3. Y tax = $3,469 = 5% * $150,000 *(75/400 + 60/100 + 150/250) /3. Total state tax after shifting = $11,532. Savings = $2,250.