Origami Does Business in States X and Y

question 96

Essay

Origami does business in states X and Y. State X uses an equally-weighted three-factor apportionment formula and has a 4 percent state tax rate. State Y uses an apportionment formula that double-weights the sales factor and has a 6 percent tax rate. Cromwell's taxable income, before apportionment, is $3 million. Its sales, payroll, and property information are as follows. a. Calculate Origami's apportionment factors, income apportioned to each state, and state tax liability.
b. State Y is considering changing its apportionment formula to a single sales factor. Given its current level of activity, would such a change increase or decrease Origami's state income tax burden? Provide calculations to support your conclusion.

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Definitions:

Cash Generated

The total amount of money produced by a company through its operational activities in a specific period.

Comprehensive Income

The total change in equity for a business enterprise during a period from transactions and other events from non-owner sources.

GAAP

Stands for Generally Accepted Accounting Principles, which are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Accrued Taxes

Taxes that have been incurred but not yet paid during a given accounting period, representing a liability on the company's balance sheet.