Chapter 23 State and Local Taxes

51. Sharon, Inc. is headquartered in State X and owns 100% of Carol, Josey, and Janice Corps, which form a single unitary group. Assume sales operations are within the solicitation bounds of Public Law 86-272. Each of the corporations has operations in the following states:

	Sharon, Inc.	Carol Corp	Josey Corp	Janice Corp
Domicile State	State X (throwback)	State Y (throwback)	State Z (non-throwback)	State Z (non-throwback)
Dividend income	1,000	200	300	500
Business income	50,000	30,000	10,000	10,000
Sales: State X	70,000	10,000	10,000	10,000
State Y		40,000	5,000
State Z		20,000	20,000	10,000
State A	20,000
State B	10,000			10,000
Property: State X	50,000	20,000		10,000
State Y		80,000
State Z			25,000	20,000
State A	50,000
Payroll: State X	10,000	10,000
State Y		40,000
State Z			3,000	10,000
State A				10,000

Compute the following for State X assuming a tax rate of 15 percent.

a. Calculate the State X apportionment factor for Sharon Inc., Carol Corp., Josey Corp., and Janice Corp.

b. Calculate the business income apportioned to State X.

c. Calculate the taxable income for State X for each company.

d. Determine the tax liability for State X for the entire group.

52. Happy Hippos (HH) is a manufacturer and retailer of New England crafts. HH is headquartered in Camden, Maine. HH provides services has sales, employees, property, and commercial domicile as follows:

	Happy Hippos In-State Activities
State	Sales	Employees	Property	Services	Commercial Domicile
Connecticut	ü	ü		ü
Maine	ü	ü	ü	ü	ü
Massachusetts	ü	ü
New Hampshire	ü
Rhode Island	ü	ü
Vermont	ü	ü	ü	ü

Happy Hippos sales of goods and services by state are as follows:

	Happy Hippos Sales
State	Goods	Services	Total
Connecticut	$78,231	$52,321	$130,552
Maine	292,813	81,313	374,126
Massachusetts	90,238		90,238
New Hampshire	129,322		129,322
Rhode Island	98,313		98,313
Vermont	123,914	23,942	147,856
Totals	$812,831	$157,576	$970,407

Payroll
State	Wages
Connecticut	$94,231
Maine	392,195
Massachusetts	167,265
Rhode Island	92,391
Vermont	193,923
Total	$940,005

HH’s property is as follows:

Property
State	Beginning	Ending	Rented
Maine	$938,234	$937,652
Vermont	329,134	428,142	$12,000
Total	$1,267,368	$1,365,794	$12,000

a) Determine the states in which HH has sales and use tax nexus.

b) Calculate the sales tax HH must remit assuming the following sales tax rates: Connecticut (6%), Maine (8%), Massachusetts (7%), New Hampshire (8.5%), Rhode Island (5%), and Vermont (9%).

c) Determine the states in which HH has income tax nexus.

d) Determine HH’s state tax base for Maine assuming federal taxable income of $282,487.

e) Calculate business and non-business income.

f) Determine HH’s Maine apportionment factors using the three-factor method (assume that Maine is a throwback state).

g) Calculate HH’s business income apportioned to Maine.

h) Determine HH’s allocation of non-business income to Maine.

i) Determine HH’s Maine taxable income.

j) Calculate HH’s Maine net income tax liability assuming a Maine tax rate of 5 percent.