Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation’s sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y. Adams’s income attributed to X is:

$3,250,000

Explanation:

First of all, we need to remember that Adams' rent corresponds to 20% of the Y installation, the net rent is $ 1,000,000 and the manufacturing revenue is $ 500,000.

The first step in this calculation is to find the total taxable income. This can be found by calculating: 1000000 + 5000000 = $ 6000000.

The second step is to find the shared revenue, for that it will be necessary to subtract the total taxable income from the allocated revenue. Through the calculation: 6000000-1000000 = $ 5000000.

Now, we have reached the end of the calculation and we must find the value of the revenue distributed to state X. This revenue is equal to 65% of 5000000, which is equal to 3250000.

In summary, $ 3250000 is taxable in State X

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