Question: Cromwell Corporation does business in two states A and B

Cromwell Corporation does business in two states, A and B State A uses an equal-weighted three-factor apportionment formula and has a 5 percent state tax rate. State B uses an apportionment formula that double-weights the sales factor and has a 6 percent state tax rate. Cromwell’s state-level taxable income, before apportionment, is $2 mil-lion. It has identified the following components of its sales, payroll, and property factors:
a. Calculate Cromwell’s apportionment factors, income apportioned to each state, and state tax liability.
b. State B is considering changing its apportionment formula to place 100 percent of the weight on the sales factor, ignoring payroll and property for apportionment purposes. Given its current levels of activity, would such a change increase or decrease Cromwell’s state income tax burden? Provide calculations to support your conclusion.

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  • CreatedNovember 03, 2015
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