Question

Sharon Inc. is headquartered in State X and owns 100 percent of Carol, Josey, and Janice Corps, which form a single unitary group. Assume sales operations are within the solicitation bounds of Public Law 86-272. Each of the corporations has operations in the following states:

Domicile State		Sharon Inc. State X (throwback)		Carol Corp State Y (throwback)		Josey Corp State Z (nonthrowback)		Janice Corp State Z (nonthrowback)
Dividend income		$	1,700	$	475	$	385	$	660
Business income		$	58,200	$	34,250	$	17,800	$	17,300
Sales:	State X	$	76,000	$	19,000	$	17,900	$	15,400
	State Y			$	48,250	$	8,000
	State Z			$	26,800	$	35,750	$	10,100
	State A	$	19,500
	State B	$	16,800					$	19,500
Property:	State X	$	74,250	$	22,400			$	18,200
	State Y			$	87,750
	State Z					$	42,750	$	38,250
	State A	$	52,250
Payroll:	State X	$	16,600	$	12,600
	State Y			$	41,000
	State Z					$	6,000	$	10,700
	State A							$	18,500

Compute the following for State X assuming a tax rate of 15 percent. (Use an equally weighted three-factor apportionment. Do not round intermediate calculations. Round apportionment factors to 4 decimal places. Round other answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. Calculate the State X apportionment factor for Sharon Inc., Carol Corp., Josey Corp., and Janice Corp.

b. Calculate the business income apportioned to State X.

c. Calculate the taxable income for State X for each company.

d. Determine the tax liability for State X for the entire group.

Answer 1

a) Calculation of State X apportionment factor for Sharon Inc., Carol Corp., Josey Corp., and Janice Corp. is shown as follows:- (Amount in $)

		Sharon Inc.	Carol Corp.	Josey Corp.	Janice Corp.
Sales	1)State X	76,000	19,000	17,900	15,400
	2)Total	(76,000+19,500+16,800) = 112,300	(19,000+48,250+26,800) = 94,050	(17,900+8,000+35,750) = 61,650	(15,400+10,100+19,500) = 45,000
	3)Factor (1/2)	(76,000/112,300) = 0.6768	(19,000/94,050) = 0.2020	(17,900/61,650) = 0.2903	(15,400/45,000) = 0.3422
Property	4)State X	74,250	22,400	0	18,200
	5)Total	(74,250+52,250) = 126,500	(22,400+87,750) = 110,150	42,750	(18,200+38,250) = 56,450
	6)Factor (4/5)	(74,250/126,500) = 0.5870	(22,400/110,150) = 0.2034	0	(18,200/56,450) = 0.3224
Payroll	7)State X	16,600	12,600	0	0
	8)Total	16,600	(12,600+41,000) = 53,600	6,000	(10,700+18,500) = 29,200
	9)Factor (7/8)	(16,600/16,600) = 1.00	(12,600/53,600) = 0.2351	0	0.00
Total (3+6+9)		(0.6768+0.5870+1.00) = 2.2638	(0.2020+0.2034+0.2351) = 0.6405	0**	(0.3422+0.3224+0.00) = 0.6646
Apportionment Factor		0.7546	0.2135		0.2215

** Josey corp. has no nexus in state X because it has no property or payroll there (i.e. no physical presence). Therefore for calculating apportionment factor, Josey corp. will not be considered.

Apportionment factor is calculated as follows:-

Total factor for three corporations = 2.2638+0.6405+0.6646 = 3.5689

Equally weighted three factor Apportionment = 3.5689/3 = 1.1896

Apportionment Factor for Sharon Inc. = 1.1896*(2.2638/3.5689) = 0.7546

Apportionment Factor for Carol Inc. = 1.1896*(0.6405/3.5689) = 0.2135

Apportionment Factor for Janice Inc. = 1.1896*(0.6646/3.5689) = 0.2215

b) Calculation of business Income apportioned to State X (Amount in $)

Particulars	Sharon Inc.	Carol Inc.	Janice Inc.
1) Business Income	58,200	34,250	17,300
2) Apportionment Factor	0.7546	0.2135	0.2215
3) Apportioned Income (1*2)	43,918	7,312	3,832

The Business income apportioned to State X is $55,062 ($43,918+$7,312+$3,832).

c) Calculation of Taxable Income for each company (Amount in $)

Particulars	Sharon Inc.	Carol Inc.	Janice Inc.
1) Apportined Business Income	43,918	7,312	3,832
2) Allocated Income (dividend income of all subsidiaries) ($475+$385+$660)	1,520	0	0
3) State Taxable Income	45,438	7,312	3,832

d) Total Taxable Income for entire group = $45,438+$7,312+$3,832 = $56,582

Tax rate = 15%

Tax Liability for State X for the entire group = Total Taxable Income for entire group*Tax rate

= $56,582*15% = $8,487