Question

Roger Corporation operates in two states, as indicated below. This year's operations generated $400,000 of apportionable income.

	State A		State B		Total
Sales	$800,000		$200,000		$1,000,000
Property	300,000		300,000		600,000
Payroll	200,000		50,000		250,000

Compute Roger's State A taxable income, assuming that State A apportions income based on the following scenarios.

Round any percentages in your computations to two decimal places. Round your final answers to the nearest dollar.

Roger's State A

Taxable Income

a. Three-factor formula, equally weighted $

b. Three-factor formula, with double-weighted sales factor $

c. Sales factor only $

Answer 1

a) Three factor formula weighted average

Sales ratio = $ 800,000/$ 1,000,000 = 4/5 = .80

Property Ratio = $ 300,000/$ 600,000 = 1/2 = .50

Payroll Ratio = 200,000/250,000 = 4/5 = .80

weighted average of ratios = (.80 + .50 + .80)/3 = .7

State A's taxable income = .7x $ 400,000 = $280,000

b) Sales ratio = $ 800,000/$ 1,000,000 = 4/5 = .80

Property Ratio = $ 300,000/$ 600,000 = 1/2 = .50

Payroll Ratio = 200,000/250,000 = 4/5 = .80

As per three factor formula, with double weighted sales factor Sales are given 60% weightage and property and payroll are given 20 % weightage each

New Sales ratio = .80 x 60% = .48

Property Ratio = .50 x 20% = .1

Payroll Ratio = .80 x 20% = .16

Apportionment ratio = .48 + .1 + .16 = .74

State A's Taxable income = .74 x $ 400,000 = $296,000

c) Sales factor only

Sales ratio = $800,000/$1,000,000 = .80

State A's taxable income = .80 x $400,000 = $320,000