JATA - Fall 1986

Volume 8, No. 1

An Empirical Analysis of Unitary Apportionment

Karen S. Hreha and Peter A. Silhan


Much debate has focused on the issue of unitary apportionment. Under the current system, a multistate corporation which operates as a unitary business must allocate its income by averaging three proportions: in-state sales to total sales, in-state property to total property, and in-state payroll to total payroll. In this study, the issue of allocative fairness is addressed by investigating the effects of alternative factor weightings on income allocations. Based on regression analysis and several error metrics, the results suggest that (1) the payroll factor tends to distort income allocations, and (2) a simple sales-property model performs relatively well.

Apportionment of Multijurisdictional Corporate Income

Dennis Schmidt


This study focuses on the issue of unitary income allocation and presents the results of an empirical analysis of formulary apportionment. The reported values of income, property, payroll, and sales for 252 large corporations are analyzed using multiple regression and error metric techniques. The study finds that the standard apportionment formula factors of property, payroll, and sales significantly reflected income-generating processes. The factors were observed to be stable over time but not across industries. The optimal weights of the factors are found to be disparate. It is demonstrated that alternate two- or three-factor formulas perform as well as the standard formula. An industry-level statistical strategy is suggested for corporations seeking formula modifications.

An Examination of the Employer's Pension Plan Choice: Integrated vs. Nonintegrated Plans

Julie H. Collins and John L. Kramer


Currently, Congress provides favorable tax treatment to two types of qualified pension plans - those which are integrated and those which are not. This research examined 522 integrated and 441 nonintegrated plans. The characteristics of employers adopting these plans and the level and adequacy of retirement benefits provided by these plans were analyzed. Generally, the employer's choice of a qualified pension plan for its particular employee group resulted in benefit adequacy for all employee groups except those with low years of service. The results of this study suggest that future pension tax reform should focus on issues of immediate vesting and portability of benefits.

Maximizing Contributions To Retirement and Deferred Compensation Plans Under Sections 403(b), 401(k), and 457: A Linear Programming Approach

J. Harvey Carruth, Harold B. Whitehead, and Kenneth E. Anderson


The Internal Revenue Code imposes complex, interrelated limitations on contributions to certain retirement and deferred compensations plans described in Sections 403(b), 401(k), and 457. As a result, an employee may find it extremely difficult to determine the maximum allowable contribution to these plans, especially when he or she participates in more than one type of plan. This article demonstrates that linear programming provides an ideal methodology for maximizing contributions to various combinations of plans and applies the general linear programming model to specific numerical examples.

CPA's Responsibility to Notify Clients of Tax Law Revisions

Martin E. Taylor and Caroline D. Strobel


Does the CPA have a responsibility to notify clients of tax law changes that specifically affect them? What steps should CPAs take to notify clients of tax law changes? Answers to these questions are important, particularly when one considers the current environment of social responsibility. There is some evidence that lawyers have an ethical duty to inform clients of major structural changes in the law that affect advice previously given. However, the Statements on Responsibilities in Tax Practice do not put accountants under the same ethical constraints. As a result, accountants must determine for themselves whether they have a responsibility to advise clients of tax law changes affecting previous tax planning. The results of a questionnaire survey sent to CPA firms to ascertain the perception of accountants of their responsibility in this area are reported in this article.

Practitioners' Views of the Common Body of Tax Knowledge for Persons Entering Public Accounting

Richard Boley and Patrick J. Wilkie


This study extends previous research regarding the identification of the common body of tax knowledge (CBTK). It has two specific goals: (1) identification of the items which comprise the CBTK, and (2) determination of the extent to which the respondents' views differ systematically along any demographic dimensions. A questionnaire was used to elicit the perception of a random sample of 864 AICPA partners and sole practitioners concerning the importance of 67 separate tax topics. Analysis of the responses reveals three important findings. First, the assessed importance of the 67 topics varies widely, ranging from highly important "accounting method" and "business transaction" topics to unimportant "specialized industry" topics. Second, the respondents do not view the 67 topics as being unrelated. Instead, they perceive them as being associated with 11 underlying tax factors. Third, absolute and relative systematic differences in the respondents' topic assessments exist along the "firm size" dimension.