Reference no: EM133389286
Case Study: Roger has recently started a new position as Tax Director for a new midsized corporation located in Denver, Colorado called Green Corporation. Green Corporation has $100,000 in Federal Taxable Income in 2020. Roger has recently completed Green's Federal tax return but has received notices from the following 5 states indicating that Green Corp might be required to file state tax returns: Colorado, Iowa, Mississippi, New York, and Hawaii. Assume that all of the states have a flat tax rate of 25% on Federal Taxable Income. Assume that Green has never done business in Hawaii and has no representatives, employees, or property located there.
Questions:
a) Do you feel that it is fair for the state of Hawaii to tax Green Corporation per the facts above? Is it fair for Hawaii to tax your income? Why or why not?
What factors do you feel states should use to determine tax jurisdiction?
b) Suppose that the state of Iowa has hit hard times in 2020 and that the state legislature is looking for ways to increase tax revenue. The governor and the state legislature were aware that they could use an altered Federal taxable income as their tax base (taxable income) for Iowa tax returns. The legislature and governor passed legislation directing Iowa taxpayers to calculate the Iowa taxable income by starting with Federal Taxable Income with an add back of the Federal code section 179 deduction. Suppose that Green Corporation took a code section 179 deduction on its return for new equipment in the amount of $900,000 in 2020. What is Green's Iowa taxable income now? How much more tax revenue does Iowa collect from Green Corporation?
c) Return to the original facts: Suppose that Green's $100,000 of Federal taxable income includes a $25,000 gain from a land sale occurring only in Mississippi. Is it fair for Iowa, Colorado, New York, and Hawaii to tax this land sale?
d) How much is Green's tax liability for each state for 2020? What is Green's total of all its state tax liabilities for 2020? Compare this to Green's Federal taxable income for 2020.
What are ways in which the income can be apportioned to fix this issue? What factors should be used to apportion Green's income between the states they do business in?