Dott Corporation generated $300,000 of state taxable income from selling its mapping software in States A and B. For the taxable year, the corporation’s activities within the two states were as follows:
?
 State A
State B
Total
Sales$500,000
$1,500,000
$2,000,000
Property250,000
–0–
250,000
Payroll200,000
300,000
500,000
?
Dott has determined that it is subject to tax in both A and B. Both states utilize a three-factor apportionment formula that equally weights sales, property, and payroll. The rates of corporate income tax imposed in States A and B are 7% and 10%, respectively. Determine Dott’s total state income tax liability.

What will be an ideal response?


?

State A Income Tax Liability 
Taxable income$300,000
Apportionment Formula  
Sales$500,000/$2,000,000=25.00%
Property$250,000/$250,000=100.00%
Payroll$200,000/$500,000=40.00%
Total  165.00%
?State A apportionment factor (165.00%/3)?× 55.00%
Taxable income apportioned to A$165,000
A tax rate× 7.00%
A tax liability$ 11,550
  
State B Income Tax Liability 
Taxable income$300,000
?
Apportionment Formula  
Sales$1,500,000/$2,000,000=75.00%
Property$0/$250,000=–0–%
Payroll$300,000/$500,000=60.00%
Total  135.00%
?
State B apportionment factor (135.00%/3)×45.00%
Taxable income apportioned to B$ 135,000
B tax rate×10.00%
B tax liability$ 13,500
Total State Tax Liability 
A tax liability$11,550
B tax liability 13,500
Total tax liability$25,050
?

Business

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