HEARTCO, a C corporation incorporated in DE, operate a manufacturing facility, which began production on 1/1/2015, at its plant in Cherry Hill, Maryland. The company is headquartered in DE, where the company rents a small office on Limestone Road for $3,000 per month. HEARTCO ships product, a state of the art heart stent, via US mail, from its manufacturing site to hospitals in DE, PA, NJ, and MD. The product is quite the lifesaver and all training to doctors/surgeons is done at the companies training center in New Jersey, which the company rents for $5,000 monthly. HEARTCO provides a money back guarantee, but very few buyers return product. All orders for the stent are made through HEARTCO’s website. Most of its advertising is by word of mouth, and it is an exceptional proprietary product. HEARTCO employs 21 people (5 are based at headquarters, and 16 work at the plant) but only 7 are residents of DE (the balance live in the surrounding states, with 5 from NJ; 5 from PA, and 4 from MD). ALL 21 employees EACH make $50,000 annually. All of the 21 employees include the executives; they all make $50,000 as well. It is a flat organization (but the executives hold the equity in the company!) Its two executives, who live in Greenville DE, all drive company owned cars. These cars worth about $50,000 each, are the only assets owned by HEARTCO other than its manufacturing plant (worth about $5 million), its inventories (worth about $500,000 at year end) and its patent on the stent (valued at $2 million). It also has a few computers at its HQ, which are worth$5,000 net. HEARTCO had sales of $10 million during 2015, with taxable income of $4 million. Of its $10 million in sales, $3 million was from sales to customers (hospitals) in PA, NJ and MD, respectively, with the remaining $1 million of sales being made to customers (hospitals) in DE. Patients who get these stents are resident of the following states – PA 20%; NJ 25%; MD 35%; New York 10%; Virginia 5%; Delaware 5%.
Assume the following income tax rates on corporations—
DE-8%
PA-3%
NJ-4%
MD-5%
NY-8%
VA-6%
You have been asked to determine how much tax will be owed to each of these states for the 2015. Although it is 2017 the company never filed for 2015 or 2016
Please provide your estimate of the taxes due, and why you would conclude such.
What, if any, Sales Tax obligations does HEARTCO have as to its sales to customers?
Does HEARTCO face any franchise taxes (Based on Capital)? Any gross receipts taxes?
Any tax saving/mitigation plans you could offer?