Compute state taxable income for HippCo, Inc. Its Federal taxable income for the year is $1 million. 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.