Repeat Problem 71 if local taxes are not al-lowed as a deduction for federal and state taxes.
Problem 71
A corporation has a taxable income of $7,650,000. At this income level, the federal income tax rate is 50%, the state tax rate is 20%, and the local tax rate is 10%. If each tax rate is applied to the total taxable income, the resulting tax liability for the corporation would be 80% of taxable income. However, it is customary to deduct taxes paid to one agency before computing taxes for the other agencies. Assume that the federal taxes are based on the income that remains after the state and local taxes are deducted, and that state and local taxes are computed in a similar manner. What is the tax liability of the corporation (as a percentage of taxable income) if these deductions are taken into consideration?