Question

Chipper Corporation realized $1,000,000 apportionable taxable income from the sales of its products in States X and Z. Both states use the same measure of pre-apportionment taxable income. Chipper’s activities establish nexus for income tax purposes only in Z, the state of its incorporation. Chipper’s sales, payroll, and property among the states include the following.

State X State Z Totals
Sales $1,000,000 $2,000,000 $3,000,000
Property 0 2,300,000 2,300,000
Payroll 0 1,900,000 1,900,000
Required:
1. X utilizes a sales-only factor in its three-factor apportionment formula. How much of Chipper’s apportionable income is taxed by X?
a. $0
b. $333,333
c. $500,000
d. $1,000,000
e. $111,111

Answer 1

a. $0

Step-by-step explanation:

The business would not be subject to taxation in a state until nexus is established; thus the Chipper’s Apportionable income (which means income of any class or type or any activity, that fulfils the connection or criteria described either in the "functional test" or "transactional test,”.) that is taxed by X equals $0