R3 M8 - State & Local Tax Issues Flashcards
Bennett Corp. has business income of $100,000, which includes no special deductions or net operating loss deduction. In addition to its business income, Bennett also has dividend income of $50,000, and 20 percent of Bennett’s property, payroll, and sales is in its home state. What is Bennett Corp.’s state taxable income in its home state?
A. $20,000 B. $70,000 C. $150,000 D. $110,000
Choice “B” is correct. Bennett’s state taxable income is calculated by starting with the $100,000 of business income to be apportioned. Using the 20% apportionment factor, $20,000 of business income is apportioned to the home state (20% × $100,000). This $20,000 is added to the $50,000 of dividend income allocated to the home state to arrive at $70,000.
Choice “A” is incorrect. Although the business income is apportioned, the nonbusiness income must be entirely allocated to the home state as well.
Choice “C” is incorrect. Although all of the dividend income is allocated to the home state, not all the business income is apportioned there.
Choice “D” is incorrect. The business income should be apportioned (not entirely allocated), and the nonbusiness income should be entirely allocated to the home state.
