Fallow Corporation is subject to tax only in State X. Stateincome taxes are not deductible for State X income tax purposes.Fallow generated the following income and deductions:
| Sales | $4,000,000 | | Cost of sales | 2,800,000 | | State X income tax expense | 200,000 | | Depreciation allowed for Federal tax purposes | 400,000 | | Depreciation allowed for state tax purposes | 250,000 | | Interest income on Federal obligations | 40,000 | | Interest income on State X obligations | 30,000 | | Expenses related to carrying State X obligations | 2,000 |
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a. The starting point in computing the State Xincome tax base is Federal taxable income, which is $.
b. If the interest on State X's obligations isexempt from State X's income tax, Fallow's State X taxable incomeis $.
c. If the interest on State X's obligations issubject to State X's income tax, Fallow's State X taxable income is$.
