Western Lumber Corporation has two operating divisions. Its logging operation in Canada mills and ships logs to the United States where the company’s building supplies division uses them. Operating expenses amount to $2 million in Canada and $6 million in the United States exclusive of the costs of any goods transferred from Canada. Revenues in the United States are $15 million.

If the lumber were purchased from one of the company’s US lumber divisions, the costs would be

$3 million. However, if the lumber had been purchased from an independent Canadian supplier, the cost would be $4 million. Assume that the marginal income tax rate is 60 percent in Canada and 40 percent in the United States.

Required

a. What is the company’s total tax liability to both jurisdictions for each of the two alternative