Question

Hyundai is considering opening a plant in two neighboring states.

Option 1:
One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,015,000 pretax profit.

Option 2:
The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $960,000 of pretax profit.

a. What is the after state taxes profit in the state with the 10% tax rate?
Afeter state tax profit ?


b.
What is the after state taxes profit in the state with the 2% tax rate?

After state taxes profit ?

Answer 1

Answer:

a. What is the after state taxes profit in the state with the 10% tax rate?

after state tax profit = $1,015,000 x (1 - state tax rate) = $1,015,000 x 0.90 = $913,500

b.  What is the after state taxes profit in the state with the 2% tax rate?

after state tax profit = $960,000 x (1 - state tax rate) = $960,000 x 0.98 = $940,800

Unlike federal corporate taxes which apply to all US corporations regardless of where they operate, state corporate taxes vary a lot depending on the state. Some states do not collect any tax at all (6 states) while others charge taxes that vary from 2.5% to 12%.