ExpertHard1 markMultiple Choice
CPA · Question 57 · Area III: Entity Tax Planning
A corporation operates in State A (tax rate 5%) and State B (tax rate 10%). It has $1,000,000 total income. Apportionment factors allocate 60% to State A and 40% to State B. If the corporation shifts $100,000 of payroll from State B to State A, increasing State A's factor to 70%, what is the state tax savings? (Assume payroll is the only factor for simplicity).
A corporation operates in State A (tax rate 5%) and State B (tax rate 10%). It has $1,000,000 total income. Apportionment factors allocate 60% to State A and 40% to State B. If the corporation shifts $100,000 of payroll from State B to State A, increasing State A's factor to 70%, what is the state tax savings? (Assume payroll is the only factor for simplicity).
Answer options:
A.
$5,000
B.
$500
C.
$1,000
D.
$0
How to approach this question
.
Full Answer
A.$5,000✓ Correct
Shifting 10% of the apportionment factor shifts $100,000 of income from State B (10%) to State A (5%). Savings = $100,000 * (10% - 5%) = $5,000.
Common mistakes
Miscalculating the income shift.
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