Determine Isle effective state income tax rate

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Problem - Isle Corporation's entire operations are located in State A. Of Isle's $600,000 sales, 60% are made in State A and 40% are made in State B. Isle's solicitation of sales in State B is limited to mailing a monthly catalog to its customers in that state. However, Isle's employees pick up and replace damaged merchandise in State B. The pickup and replacement of damaged goods establish nexus with State A.

However, B's definition of activities necessary to create income-tax nexus is less strict than that imposed by A; in B, the mere pickup and replacement of damaged goods does not create nexus there. Isle's taxable income is $60,000. Both states impose a 10% corporate income tax and include only the sales factor in their apportionment formulas.

Determine Isle's effective state income tax rate if:

a. State A has not adopted a throwback rule.

b. State A has adopted a throwback rule.

c. Create a Microsoft Excel formula that will compute correctly the State A taxable income regardless of whether a throwback rule has been adopted.

Reference no: EM132664124

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