Boot Corporation is subject to income tax in States A and B.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 and B.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 an equally-weighted three-factor apportionment formula, Boot's state apportionment factor for State A is 53.33% [(2/3)*(300,000/1,000,000) + (1/3)*(50,000/100,000) + (1/3)*(200,000/800,000)]. Therefore, the amount of Boot's income subject to A income tax is $106,660 ($200,000 * 53.33%).

With a double-weighted sales factor, Boot's state apportionment factor for State A is 75% [(1/2)*(250,000/500,000) + (1/4)*(50,000/100,000) + (1/4)*(200,000/800,000)]. Therefore, the amount of Boot's income subject to A income tax is $150,000 ($200,000 * 75%).

The difference between the two is $16,100 more of Boot's income subject to A income tax using the equally-weighted three-factor apportionment formula.

Therefore, the answer is D, ($16,100).

Boot Corporation Is Subject to Income Tax in States a and B.Boot's