Question

The Bartonia Company manufactures grommets in Georgia and sell them directly to industrial customers in Georgia, Florida, and South Carolina. The company’s profit for last year was $20,000,000. The company has its manufacturing plant and headquarters in Georgia, warehouses in South Carolina and Florida, and sales forces in each state. Here are some of its financial statistics:

	Payroll	Property	Sales
GA	5,000,000	35,000,000	6,000,000
SC	1,000,000	5,000,000	13,000,000
FL	500,000	400,000	1,000,000
TOTAL	6,500,000	40,400,000	20,000,000

1. Suppose each state uses a simple three-factor apportionment formula. What share of company profit would each state tax?

2. Make that same calculation, but suppose each state double-weights the sales factor.

3. Make the calculation with each using only the sales factor.

4. Assume now that GA adopts the single sales factor and the other states use double-weighted sales.

5. Assume now that South Carolina adopts the single sales factor and the other states use double-weighted sales.

6. Explain why manufacturing firms in some states have pressed for use of the single sales factor. Why have nationwide business organizations not made this switch an issue?

Please answer all parts.

Answer 1

Part 1:
		States
		Georgia	Florida	South Carolina
Simple three factor apportionment ratio		6500000	40400000	20000000	66900000
Total profit	20000000
Share of company profit taxable		1943198.8	12077728	5979073.244	20000000
Thus, share of profit the states would tax is as following:
State	Amount ($)
Georgia	1943199
Florida	12077728
South Carolina	5979073
Part 2
	States
	Georgia	Florida	South Carolina
Payroll	5000000	500000	1000000
Property	35000000	400000	5000000		5400000
Sales	12000000	26000000	2000000
	52000000	26900000	8000000	86900000
	Georgia	Florida	South Carolina
Basis of apportionment	52000000	26900000	8000000
Total profit	20000000
Share of company profit taxable	11967779	6191024.2	1841197
				#DIV/0!	#DIV/0!
part 3:
	States
	Georgia	Florida	South Carolina
Sales	6000000	13000000	1000000	20000000
Total profit	20000000
Share of company profit taxable	6000000	13000000	1000000
Part 4:
	States
	Georgia	Florida	South Carolina
Sales	6000000	26000000	2000000	34000000
Total profit	20000000
Share of company profit taxable	3529412	15294118	1176471
Part 5:
	States
	Georgia	Florida	South Carolina
Sales	12000000	26000000	1000000	39000000
Total profit	20000000
Share of company profit taxable	6153846	13333333	512820.5

Answer to part 6:

The use of single sales factor is the most appropriate method to determine the tax liability as it represent the amount of revenue earned in different states which is the primary contributing factor in determining the amount of profit on which tax is to be imposed.

The nation-wide business organization has not made this an issue as it is the most appropriate method to determine the fair tax liability in different states in the country.