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.
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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 apportioned income to State A is:

($200,000 ÷ 2) × (1/2 + 2/3 + 2/3) = $100,000 × 7/6 = $116,667

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

($200,000 ÷ 2) × (4/9 + 2 × 5/9 + 2 × 0) = $100,000 × 14/9 = $155,556

The difference between the two results is $155,556 - $116,667 = $38,889. However, this represents the additional income that would be subject to State A income tax, so we need to reverse the sign to get the answer in the question's format. Therefore, the answer is D) ($16,100 less of Boot's income is subject to A income tax).

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