PROBLEM 1 FACTS: John Shasta, CFO of Cougar Corporation, along with his wife, Julie, personally owns XYZ,

PROBLEM 1

FACTS: John Shasta, CFO of Cougar Corporation, along with his wife, Julie, personally owns XYZ, Inc. (“XYZ”), an S corporation incorporated in the State of Texas in 2012. Each owns 50%. Julie is President and Secretary of XYZ; John is Treasurer. Both individuals are directors of XYZ. They do not operate any other activities. In 2020, 80% of all sales and gross profits of XYZ took place in Texas; 20%, in Louisiana, where title transferred. No employees traveled outside of the state of Texas to perform services for XYZ. 

Following is XYZ’s 2018 net income activity for the period 1/1/2020 – 12/31/2020:

Sales $1,650,000

COGS  (900,000)

Gross Profit  750,000

Compensation  (350,000)

Other deductions  (150,000)

Net income $ 250,000

Using the information above, prepare Texas Forms 05-158-A, Texas Franchise Tax Report (pp.1-2) and 05-169 Texas Franchise Tax EZ Computation Report. Forms can be found on the Texas Comptroller’s website. You may need to refer to the instructions for the forms, which can also be found on the website. Use “poetic license” to fill in certain required information.

PROBLEM 2.

Della Corporation is   headquartered in Carlisle, Pennsylvania. Della has a Pennsylvania state   income tax base of $425,000. Of this amount, $75,000 was nonbusiness income.   Della's Pennsylvania apportionment factor is 28.52 percent. The nonbusiness   income allocated to Pennsylvania was $61,000. Assuming a Pennsylvania   corporate tax rate of 7.75 percent, what is Della's Pennsylvania state tax   liability?  (Hint: See SALT PPT slide #14, State Income Tax Process.)