i will have the first case call when i do call the case of the attorneys who will be arguing i would that we would appreciate your stepping up for the day is an identifier self for the record a number of issues and as you alluded to many of them quite technical this morning i want to get back to first principles and emphasize wearing fundamental despise  overarching principle one point main point and it that thing they combined the portion that method for unitary business groups illinois and so when you have a unitary business which may be conducted not only in illinois but also in other states then the issue arises how to determine what portion of the income is fairly attributable in state activities and that is a uniquely state income tax problem so and that's for purposes of computing ordinary income statutory phrase is business income and the statute section three zero forty requires the use of the combined apportionment method in order to determine what portion of the business income of the unitary business group is fairly attributable to illinois  have the phrase is business income so that's income earned by the business in the regular course of business activities and that income may be capital gain it may be ordinary income it may be a capital loss and it may be an ordinary loss and there is no exception in the statute there is no instead exception at all for any special treatment in so far as business income is concerned there is no special treatment for capital losses now in determining in this case of course we're trying to determine the i don't know exactly isolating extraterritorial business from in trust state business how would the allocation of capital losses play case of introverts this extra state i'm asking you how that would play into the pursuit of separating illinois business from out of state it really is this is this case that's involved isolating the income properly attributable to illinois from the balance of the his miss income of the unitary business so i mean that's that's income stipulated that and found by the by the way that was business income and so crisp illinois could properly tax and a portion to share of of the capital gain from hundred ninety nine now in two thousand and two the s b c unitary group of which the ameritech companies are now a part incur a very large capital l and everyone agrees that the portion of that loss properly attributable to the activities of the ameritech companies may be carry back separated from the balance of the c try to distinguish between the methodology which the state may use to compute the carry back or to allocate the carry back on that operating losses from the capital losses back to the pre acquired business activity of i notice i said i didn't say unitary group i said business activity using a neutral t the unitary group in two thousand and two whatever portion of that has fairly attributable to the activities of the ameritech members of the group may be separated attributed to them and carry back by them to nine hundred ninety nine and there is excess now self your position is at that point represents approximately twenty eight percent of that capital l where is the department concluded that approximately two point three percent of that some billion dollars how much is the is the  the departments approach and your clients approach is both in terms of whether the gross receipts now becomes the measuring standard and well let me make myself clear you would say you need to compute the ratio based on the ratio of the unitary of the of the marriage group who were actually who actually sustained a loss in the two thousand and two year and only impact would carry it strongly take issue with the use of the word sustain because that implies that we know how much of the loss was actually incurred by the ameritech members as suppose for a com and underline this is how much they reported based on separate company accounting and so the traced the trace back to court pairs is whether it is a valid measure to reference to which my language refers to as well as to yours we don't know it's kind of patient with its current state of meaning but we know that it is to what despite the correct description of what would have taken place under the federal separate business accounting system as opposed to yes we have not disputed their reading of the federal consolidated return regulations in so far is that how they would apply at the federal level to a federal consolidated purcel the question allocate ordinary income other you know and truth whether regardless of its rationale or let's put it this way that's not not authorized but if it is reasonable it may not be the be all and end all ok let me let me let me address the rest chanelle for why we think twenty eight percent is the correct number the rationale for business group that had reported a loss on there that will consolidate return but at the same time they were members of the nine hundred ninety nine ameritech unitary business that those were the only bills with the only like yes because that bad approach assumes that when each member of the group reported very very top of of any group but i'm talking now about the two thousand and two rationale the what you have to decide here is when you have income or or in this case business income in this case the capital loss and there was a finding been no and it was stipulated by the parties that bad three point six billion capital loss was business income ok it was well it was stipulated the rationale that i gathered from the state from the from the department s arguments are among other things and i'm not claiming to necessarily agree or disagree with that that the that's the whole basis for the combined approach fact with respect to ordinary income when you're dealing with a unitary companies whose business activities are fully integrated and i'm only on the mere fact that that the cash register is lost the get the game which the last seeks to absorb that bad assertion that assertion that it's easy to identify the source of the capital loss is directly in conflict with the you're talking about those computations that under any system are going to be made before you can recognize the game every  every time every company has to identify the game and they cannot identify the game without  but there is no authority this status point is the north thirty that says somehow you can identify the separate source of the capital loss but we are unable to identify the separate source of the capital gain the separate of ordinary income or the separate service of an ordinary loss i demonstrated we demonstrated in our brief that here you know when it comes to marian come mr carroll with all due de where they tell you what you see is not what you see the the boat the regulation or the statue cannot change something that's identifiable it to something that's not like them  business group may never be divide it and attributed to a member of the group on the basis of separate company accounting that that is the fundamental point and because activities of this company or how much is attributable to the illinois activities or how much it's earned by all of the activities of all of the groups you know functionally integrated fashion twenty eight percent and envy and the  method that you use to attribute a portion of that in to a portion of the activities is the method chosen by the illinois legislature and the legislature chooses an objective measure of right is the contribution of particular activities in this case in two thousand and two the object of member measure chosen by the illinois legislature is sales there used to be a three factor formula payroll property and sales that's that's a legislative choice there are a number of reasonable methods but these are objective measures of the contribution of activities and in two thousand and two the measure chosen by the only way legislature is sales twenty eight percent of the us sales were sales by the ameritech members and so they are given credit for contributing twenty twenty eight percent of the activities that generated that capital loss just as it turned out eight point eight percent of the any federal statutes or regulations an explicit application of the combine method to capital losses  now i have so some more fine tuning of it of that question because you're going to answer me business income but when there is a rational distinction between one form of the income and another one has a right to expect the authority to explicitly extend this rule conforming to the rationale that would have called for in that role like with regard to a point i think you may be operating under a misunderstanding your honor in illinois capital gains are not attributed on the basis of separate company accounting they are treated just like ordinary income and they are apportioned based on activities there is no special treatment for capital dashingly identifiable that may have generated or justify the combined approach to ordinary income and loss and that's actually one of the  danger there is no statutory authority in the annoy for creating a separate assumption assumption that separate company accounting is somehow valid for attributing a capital loss when the horror thrust of the statute in section three or four he in five and two e the illinois supreme court decisions in caterpillar and citizens utilities say that group as one taxpayer now i had my prepared remarks to show how that is further giving effects a combined the portion that how that is further a rejection of separate company accounting which all of a sudden  because it's crucially important to meet the chronology is that you had a general apportionment statute in illinois and the going away supreme court in caterpillar interpreted that statute as requiring combined apportionment for a group and in that opinion the courts stated explicitly that the income reported by a member on separate company accounting basis is not attributable certainly to the activities of an effort that member it is attributable to the f combined integrated efforts of a group and therefore separate company a county is never permissible now then there was an effort legislative effort to overturn caterpillar  reverse it into saying now we'll have separate company accounting that passed the legislature the governor sent his amended tory veto and it ended up going one hundred eighty degrees in the opposite direction the illinois legislature affirmatively explicitly adopted section three zero two e saying in now in the shrine to the statue yes we have combined the portion that that met was the rationale for that which is discussed in our brief is separate company a county isn't never an appropriate basis ever never ever an appropriate basis for dividing the income of a unitary business group because the rationale the philosophy is at the generating the activity they gave rise to the gain was a combined activity of all of the members of the group you can never attribute gain or income to an isolated i'm on the basis of separate company county so case and now we have the statute the next step but they were filing second returns i'll say on a unitary basis so then they said ok the illinois legislature said let's have section five  the which will permit companies to elect to file a single combined return and treat the members of the group as a as one tax payer that is moving along a continuum away from separate company accounting away from saying only two thirds or two point three percent away from what the department is doing towards our approach which is combined the portion then most directly for this case  department of revenue to promulgated regulations to give effect to treating all the members of the all the corporate members of a unitary business group as one taxpayer the regulation it's all just laid out in their brief letter that was supposed to achieve the objective of true disregarding corporate for melody and treating the companies as one taxpayer because of the business income of the group he's earned by the group as a single integrated economic enterprise and it doesn't matter who results doesn't matter if but if there are ten of subsidiary companies in the unitary group who sustained losses or if there is only one the one carries the flag for all of them it doesn't matter who reported that loss i cannot accept the word sustained because that as need to know who reported you need to know the total income of the group and you apportion it based on activities and you use the objective measure of activities that the only way legislature is given you so now we've gone from caterpillar to citizens utilities to section three hundred forty the section five bill to be to section fourteen or run which is the thirty for the regulations said in every case separate company accounting is forbidden separate company accounting is invalid you cannot say and the basis of separate company accounting is attributable to any member of the group because separate company accounting miss is the battle when you have functionally integrated unitary business the income is earned by the group and separate company accounting fails to take into account the benefits of centralized management it's all in all the cases it's uniformly rejects it now it would be our say prefers that's the word be used in our brief taxpayer that that could somehow morph into authority for regulation they close all the way back to recap a pillar and says for the first time in illinois what's separate company accounting income is earned by the group as a whole if separate company accounting were a valid basis for attributing income among the members of the group the caterpillar case would have gone the other way if separate company perks the way it works in illinois is illinois corporations they start with federal passable income to compute their basic income once the base income is computed then it's a portion that will feel for you can look at the statute itself will thrill for comes under article that's the one i was there that's what second and the capital gain of the separate company is not decided on any formulaic basis no it's done on a it's allocated especially what you're doing you're treating the cap the unitary group as a federal company basis once base income is combined that's when the portion that occurs and there's you know the taxpayer has almost sort of amassed a magical mystical approach to apportion and they suggest that somehow this isn't butu every item every purpose i use as you pointed out really to allocate income geographically so that states can properly capture out of the question is whether what it morphed into i did may have started with a given rationale but we and that's it so that if you don't have capital gains you lose the benefit of the last even though there would be a ordinarily a carry over if it were ordinary gains or losses it should be jittery over it as an ordinary loss if there  in they're trying to apportion income before it goes into well it goes into the base instead of a portion of it after the patient comes people that's the number one problem in their case and from that all of their the rest of their problems well what's the ease ease of tracking companies ease of when companies get loot the unitary you know companies leave different groups and change ownership so illinois follows the federal task with encrypt computing the guess i disagree with all due respect to the premise that the anything in illinois law suggests that income that goes into base income every item of income has to be apportioned before it goes into the base that's just not illinois law it's not with the statute but as i notice take advantage of the lion's share of this loss and that's just not it's and it can't be correct under illinois law because you say so or because of your health you're basing it on to be regulation because a case because of regulation or director of the like capability of a net operating loss on the basis of the combined nothing but you're isolating capital gains and capital losses as being a distinctive  north to be doing that excluded from the generic language of the case law and the statute that deals with business income generically general no no you're wrong let me correct because when you're again you when you're computing base income items that go into the basin if items are going to base income are going to be even a caterpillar company when they combine their base income they took the seventy five companies and put it all together and then they question to determine what the net income that illinois sacred about the notion that the that the capital loss has to be so to speak pristine as opposed to being an accounting construct of there's nothing left equally missed magical because it's easy it's hard to focus it's more difficult to source in the where the income of the incoming was you talk about a net app a capital loss it's very easy to determine where capital but it may be very easy but it may be to them i'll do my best thank you first this comment about base income base income remember in caterpillar initially each member of the group separately apportion its separate company income it started it said it's base income was it separate company income and so each member of the group separately apportioned whatever it had reported based on its activities this was rejected by the illinois supreme court you're annoyed supreme court said the claim to is the more i'm sorry justice work it's a great just thank you he said the court said the claim to income of each member does not reflect conducting a unitary business and it is not attributable solely to the efforts of a particular member and so the caterpillar case was only about base income if that would have been a valid measure of base income separate company accounting then the case would have gone the other way the issue is not base income the issue is can you ever divide the come by income of a group or unitary business group a ny method other than formulary apportionment is there any for writing a separate accounting separate geographical accounting separate corporate accounting any is can any kind of separate accounting ever be acceptable as a basis for allocating in ireland debts but that is already there you go around the block a second time with regard to gross receipts you automatically have to have a doesn't work but they chose that as a measure of activity but they didn't accept me if separate company accounting which is what they are doing here work ever acceptable if it were acceptable for unitary business groups well the authority every for it would have been decided the opposite way now the statement was made that there is separate accounting for capital gains in illinois in response to your right but now let's suppose that you've got a group where one member reports of one thousand dollars of capital gain which would be attributed to illinois and other states based on based on activities the measure of activities and another member has a loss of one hundred so now the group has a net capital gain of nine hundred and that nine hundred gets a portion based on activities under that regula some capital masses and they were netted together the effect of that is that the losses were then in effect passed around and attributed the activities in exactly the same way the gain was they didn't  or whatever are as a group of them city snow sir the capital ross of the group was generated by the group as a whole without regard to who reported the l point no not my point is you have to attribute a portion of the last of the ameritech companies and you have to do it the wrong way if you use separate company accounting we are deprived of a fair measure of the capital losses that are attributable to our activities here in oil has told you that when you head when you apportion or attribute a share of the business income of the group to one of the two a subset of the activities which is necessary because we have a separate return year we have to separate out the ameritech share of that was twenty eight percent of that loss is attributable to the activities of the americas rationally or ninety five percent which is odd of yes because initially the wrong comparison was made it was based attributable to our activities we want to carry back the capital ross that's attributable to our activities and we're being prevented from doing it and it's not a question of a windfall to us we are being way over tax on an amount that's out of all appropriate proportion to what's fairly attributable to our activities and and the irony is that after you carry back this minuscule loss using separate company count effect to corporate structure which is the antithesis of what the legislature has told you to do now once again you're going to apportion it the illinois based on activity so you've got a pool of cap of gain a attributable to the activities of any s p c member we got close we agree we cannot do that this case is the opposite of a windfall thank you thank you this case