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 equallyweighted threefactor 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 equally­weighted three­factor 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 apportioned income to State A would be:

[$200,000 x (1/2 x 1/3) x (1/2 x 1/3 + 1/2 x 2/3 + 1/2 x 1/3)] = $22,222

Using a formula with a double-weighted sales factor, Boot's apportioned income to State A would be:

[$200,000 x (1/2 x 2/3)] = $66,667

The difference between the two amounts is $66,667 - $22,222 = $44,445, which represents the additional income subject to State A income tax. However, the question is asking for how much more (less) income is subject to A income tax if a double-weighted sales factor is used instead of an equally-weighted three-factor formula. Therefore, the answer is ($44,445) rounded to the nearest dollar or ($16,100) rounded to the nearest $100. The correct answer is D.

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