McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 48

Hyundai is considering opening a plant in two neighboring states.One state has a corporate tax rate of 10 percent.If operated in this state, the plant is expected to generate $1,000,000 pretax profit.The other state has a corporate tax rate of 2 percent.If operated in this state, the plant is expected to generate $930,000 of pretax profit.Which state should Hyundai choose? Why do you think the plant in the state with a lower tax rate would produce a lower before-tax income?