Boot Corporation is subject to income tax in States A andB. Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows. How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?

Question

Boot Corporation is subject to income tax in States A andB. Boot's operations generated $200,000 of apportionable income, and its sales and payroll activity and average property owned in each of the states is as follows.  How much more (less) of Boot's income is subject to A income tax if, instead of using an equally-weighted three-factor apportionment formula, A uses a formula with a double-weighted sales factor?

Quizplus · Accepted Answer

Using the equally-weighted three-factor apportionment formula, Boot's apportioned income to State A would be:
(1/3 × $200,000) = $66,667
Using a double-weighted sales factor formula, Boot's apportioned income to State A would be:
[(0.5 × $150,000)/$400,000 + 0.5 × ($40,000/$200,000)] × $200,000 = $50,467
The difference in apportioned income to State A between the two methods is:
$66,667 - $50,467 = $16,200
Since this difference is less than zero (negative), the answer is (D) ($16,100), not (C) $16,100.

Boot Corporation Is Subject to Income Tax in States a AndB