Parent Corporation owns all of the stock of Junior Corporation, a Delaware passive investment company. Parent operates strictly in nonunitary State B, which levies a 9% income tax. This year, Junior earned $200,000 of portfolio interest income and paid a $150,000 dividend to Parent. In which state(s) will the interest income create an income tax liability?

Question

Quizplus · Accepted Answer

Junior Corporation is a passive investment company, which means that its income is derived from investments rather than from business operations. As such, Junior Corporation's income is not subject to apportionment. Therefore, the interest income will not create an income tax liability in either State B or Delaware.

Parent Corporation Owns All of the Stock of Junior Corporation