Franz Corporation Is Based in State a (Corporate Income Tax

question 154

Essay

Franz Corporation is based in State A (corporate income tax rate 10%). It sells its goods to customers in both A and State B (corporate income tax rate 4%). Franz's state taxable income for the year is $1 million, 45% of which relates to B customers. Franz's level of activities in B is insufficient to create nexus there, but A has adopted a throwback rule as to multistate sales. Would Franz reduce its total state income tax liability by creating nexus with B, say by allowing its sales force to make credit decisions? Elaborate.

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Definitions:

Net Operating Income

The profit generated from a company’s everyday business operations, calculated by subtracting operating expenses from revenue.

Units Produced

The total number of units created by a production process over a specific period of time.

Break Even

The point at which total revenues equal total costs, resulting in neither profit nor loss.

Common Fixed Expenses

Common fixed expenses are costs that remain constant for a given period regardless of the level of production or sales, and are shared among multiple product lines or departments within a company.