Reference no: EM131302633
Problem -
2012 was a great year for Eugene Inc. a Colorado corporation. Eugene operated 5 offshore oil wells valued at $25,000,000 in Mexico, a well worth $5,000,000 in California at 2.8 miles off shore; and one worth $10,000,000 in Colorado. Eugene solicited sales in Arizona and held training sessions for its sales staff there. Eugene paid for sample oil storage for use by its sales team in Arizona. Eugene's financial statement provides the following information from its operations of oil:
Total Sales 30,000,000
Colorado Sales 2,000,000
California Sales 5,000,000
Arizona Sales 500,000
Total payroll 2,000,000
California Payroll 500,000
Total Net Income 20,000,000
Eugene, in addition, had non-business income of $80,000 from a transaction in Colorado, and $60,000 from a transaction in California.
a. What amount is subject to formulary apportionment?
b. What amount is subject to specific allocation, and to what state?
c. Assume the single sales factor, state the UDITPA formula as it applied to California in 2012
d. Substitute the appropriate numbers in the formula and compute the amount of net income that is subject to the California Income Tax
e. Would Eugene's income be subject to apportionment in Arizona? Why?
f. Assume that Colorado does not tax income, and sales were shipped from California, what rule would change the California sales factor and by how much?
g. How might Eugene avoid California taxation?
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