Vogel Corporation owns two subsidiaries, Song and Bird. Song, located in State A, generated taxable income of $500,000. During this same period, Bird, located in State B, generated a loss of $100,000. Determine Song's taxable income in States A and B, assuming that the subsidiaries constitute independent corporations under the tax law. How does your answer change if the corporations constitute a unitary business?

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Vogel Corporation owns two subsidiaries, Song and Bird

Accounting Aug 30, 2020

Vogel Corporation owns two subsidiaries, Song and Bird. Song, located in State A, generated taxable income of $500,000. During this same period, Bird, located in State B, generated a loss of $100,000.

Determine Song's taxable income in States A and B, assuming that the subsidiaries constitute independent corporations under the tax law.
How does your answer change if the corporations constitute a unitary business?

Expert Solution

a. If the subsidiaries are taxed as independent corporations, Song pays only State A tax on $500,000 of income.

b. If the corporations constitute a unitary business, the incomes, as well as the apportionment factors , of the two entities are combined. As a result, $400,000 ($500,000 - $100,000 ) is apportioned to unitary States A and B.

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