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What is unitary state income tax?
Should a state impose mandatory unitary combined reporting?
Why do corporations have multiple unitary tax returns?
Does combined reporting require a unitary relationship?
The first difference is a concept unique to state reporting — the unitary business principle. A U.S. consolidated federal income tax return is made by taxpayer election and requires 80% ownership of vote and value, and the Sec. 1504 affiliated group includes only U.S. corporations.
- Unitary Group Opportunities
- Functional Integration
- Centralization of Management
- Economies of Scale
- Jurisdictional Inconsistency
- Sources
While combined reporting often limits potential opportunities for impacted businesses through the imposition of mandatory rules under separate reporting regimes, several opportunities may be available, including defining the unitary group subject to combination, as well as apportionment planning in the proper calculation of the sales factor. In mos...
The functional integration test looks to shared functions and refers to transfers between, or pooling among, business entities that significantly affect the operation of the business activities.5Generally, functional integration includes, but is not limited to, transfers or pooling with respect to the business’s products or services, technical info...
The centralized management test focuses on not the ability to control but the actual amount of common control exercised between business segments. Centralization of management exists when directors, officers, and/or other management employees jointly participate in the management decisions that affect the respective business activities and that may...
The economies of scale test focuses on whether there is any income earned as a result of shared functions, activities, or operations. Economies of scale refer to a relation among and between business activities resulting in a significant decrease in the average per-unit cost of operational or administrative functions due to the increase in operatio...
Currently, approximately 30 jurisdictions mandate unitary combined reporting for general corporations that are commonly owned or controlled. However, notwithstanding the constitutional tests discussed above, these states adopt varying statutory definitions of “unitary” for purposes of combined reporting. Even in cases where the definitions in diffe...
Butler Brothers v. McColgan, 315 U.S. 501 (1942); See also 17 Cal. 2d 664.Edison California Stores v. McColgan, 183 P.2d 16 (1947).Mobil Oil Corp. v. Commissioner of Taxes of Vermont, 445 U.S. 425 (1980).Ibid.Sep 26, 2017 · The unitary state income tax is a means by which certain states regulate the collection of income in the form of taxes from companies that do interstate commerce or file consolidated tax returns. While the regulation and requirements vary greatly among states, some generalities may be used to explain the concept. Unitary Returns.
Feb 24, 2017 · How Combined Reporting Works. For corporations that only do business in one state, paying corporate income taxes can be simple – all of their profits are taxable in the state in which they are located. For corporations with subsidiaries in multiple states, the task of determining the amount of profits subject to taxation is more complicated.
Policy Position. Generally, states apportion the unitary business income of each separate taxable entity (separate reporting) or apportion the business income of the unitary group that includes one or more such taxable entities (combined reporting).
In Legal Ruling 2021-01, the FTB examines the unitary relationships of general partners and limited partners and the relationship between each such type of partner and the operating partnership whose interest is held.
