1. Salem Corporation uses calendar year as its financial and tax annual accounting period. Management, because of seasonality of sales, wants to change to a fiscal year beginning 1st April through March 31st. You have been asked to review the tax law criteria for making this change. Prepare a memo (750-1,000) to your CFO showing the outcome of such a change on current taxes and outlining the needs for making this change.
2. Milt Corporation owns and operates two facilities that manufacture paper products. One of facilities is located in State D, and other is located in State E. Milt generated $1,200,000 of taxable income, comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from sale of non-business property located in E. E does not distinguish between business and non-business property. D apportions business income. Milt's activities within two states are outlined below.
State D State E Total
Sales of paper products $4,500,000 $1,500,000 $6,000,000
Property 3,500,000 2,500,000 6,000,000
Payroll 1,500,000 1,000,000 2,500,000
Both D and E use a three-factor apportionment formula, under which sales, property, and payroll are equally weighted. Evaluate the amount of Milt's income that is subject to income tax by each state. Make sure to evaluate the full taxable income and show all calculations.