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 would allocate $100,000 of income to each state ($200,000 x 50% for each factor).

However, if State A uses a formula with a double-weighted sales factor, the calculation would be as follows:

Sales Factor for State A = $1,000,000 / $3,000,000 = 33.33%
Payroll Factor for State A = $60,000 / $200,000 = 30%
Property Factor for State A = $600,000 / $2,000,000 = 30%

Weighted Factor for State A = (2 x Sales Factor) + Payroll Factor + Property Factor 
= (2 x 33.33%) + 30% + 30% 
= 96.67%

Income allocated to State A = $200,000 x 96.67% = $193,340

Therefore, using a double-weighted sales factor would result in $193,340 of income being subject to A income tax, which is $16,660 less than the amount allocated using an 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