Question

True Corporation, a wholly owned subsidiary of Trumaine Corporation, generated a $400,000 taxable loss in its first year of operations. True's activities and sales are restricted to State A, which imposes an 8% income tax. In the same year, Trumaine's taxable income is $1,000,000. Trumaine's activities and sales are restricted to State B, which imposes an 11% income tax. Both states use a three-factor apportionment formula that equally weights sales, payroll, and property, and both require a unitary group to file on a combined basis. Sales, payroll, and average property for each corporation are as follows:

True Corporation Turmaine Corporation Total
Sales $2500000 $4,000,000 6500,000
Property 1,000,000 25,00,000 35,00,000
Payroll 500,000 1500,000 2,000,000

True and Trumaine have been found to be members of a unitary business.
a. Determine the overall state income tax for the unitary group.
b. Determine aggregate state income tax for the entities if they were non-unitary.
c. Incorporate this analysis in a letter to Trumaine's board of directors. Corporate offices are located at 1234 Mulberry Lane, Birmingham, AL 35298.

Answer 1

To determine the overall state income tax for the unitary group, calculate the apportioned income and apply the tax rates of each state. If the entities were non-unitary, calculate the state income tax for each corporation individually.

Step-by-step explanation:

a. To determine the overall state income tax for the unitary group, we need to calculate the apportioned income and apply the tax rates of each state.

First, we need to calculate the apportionment factor for each corporation. The apportionment factor is calculated by dividing the sales, payroll, and property of each corporation by the total sales, payroll, and property of the unitary group.

Then, we multiply the apportionment factors by the taxable income of each corporation and apply the respective tax rates of State A and State B. Finally, we add the state income taxes of True Corporation and Trumaine Corporation to determine the overall state income tax for the unitary group.

b. If True Corporation and Trumaine Corporation were non-unitary, we would calculate the state income tax for each corporation individually. We would multiply the taxable income of each corporation by the respective tax rates of State A and State B to determine the aggregate state income tax for the entities.

c. Dear Trumaine's board of directors, I have analyzed the state income tax implications for True Corporation and Trumaine Corporation. Based on the information provided, the overall state income tax for the unitary group is determined by calculating the apportioned income and applying the tax rates of each state. If the entities were non-unitary, the state income tax would be calculated for each corporation individually. Please let me know if you need any further assistance.