Question

HippCo Federal taxable income for the year is $1,000,000. Its operations are confined to Oregon and Montana. HippCo generates only business and interest income for the year.

Federal cost recovery deductions totaled $200,000. Montana used this amount, but Oregon allowed only $120,000.

Interest income of $25,000 from Oregon bonds was excluded from Federal taxable income. Oregon taxes all municipal bond income, while Montana taxes all such interest except that from its own bonds.

Interest income from Treasury bonds that was recognized on the Federal return came to $11,000. Neither state taxes such income.

Oregon's state taxable income is $___________ and Montana's state taxable income is $__________

Answer 1

Particulars	Oregon	Montana
HippCo Federal Taxable income	$1,000,000	$1,000,000
Deductions	($120,000)	($200,000)
Interest Income from Oregon bonds	$25,000	$25,000
Taxable Income	$905,000	$825,000

As given in the question, deduction will be $120,000 and $200,000 for Oregon and Montana respectively so the respective amount has been deducted and interest income from oregon bonds not included in the federal taxable income will be taxable in both as Montana taxes all interest except from its own bonds and this interest income is not from its bonds and oregon taxes all such incomes. Interest income from Treasury bonds is already included in Federal Income. So Oregon's state taxable income is $905,000 and Montana's state taxable income is $825,000.