June Corp, $5,000,000 of taxable income. One of the states in which it does busi
ID: 2400144 • Letter: J
Question
June Corp, $5,000,000 of taxable income. One of the states in which it does business is Kentucky, which uses the three-factor formula with a double-weighted sales factor to apportion income. If June Corp’s property factor in Kentucky is 0.05, its payroll factor is 0.05, and its sales factor is 0.15, what amount of its taxable income has to be apportioned to Kentuck
Sam manufacturing Inc. does business in two states. Each state used the single-factor sales formula to apportion income. State 1 imposes a 5% tax on income, and State 2 imposes an 8% tax on income. The company’s federal taxable income was $3,000,000. Each state uses federal taxable income as its base for imposing its tax. If the company has $1.5 million in sales in State 1 and $1 million in sales in State 2 and no income allocable to either state, how much does the company owe each state?
3. Holt Industries, Inc. does business in State 1. That state uses federal taxable income as the starting point for calculating state income tax. Interest on state obligations is taxed, but interest on federal obligations is not taxed. Only straight-line depreciation may be deducted. Holt Industries’ income and expenses for the year are:
Sales $200,000
Interest income on federal obligations $4,000
Interest income on state obligations $5,000
State taxes $10,000
MACRS $15,000
(straight-line depreciation) $8,000
Cost of sales $60,000
Other business expenses $20,000
Other business expenses $20,000
Explanation / Answer
1) June Corp Taxable Income 5000000 Three factor formula Property factor 0.05 Payroll factor 0.05 Sales factor (2*0.15) 0.3 0.4 Average of three factor formula - 0.40/3 0.13333333 Amount to be apportioned to Kentuck 666666.667 2) State 1 5% tax on income State 2 8% tax on income Company's federal taxable income $3,000,000 Sales on state 1 1500000 Sales on state 2 1000000 Total Sales 2500000 Taxable Income of State 1 - 300000*1500000/2500000 180000 Taxable Income of State 2 - 300000*1000000/2500000 120000 Tax of State 1 180000*5% 9000 Tax of State 2 120000*8% 9600 3) Sales 200000 Interest Income on state obligations 5000 Total Income 205000 Less : State Taxes -10000 Depreciation -15000 Cost of Sales -60000 Other Business Expenses -20000 Other Business Expenses -20000 Taxable Income 80000