## I L L I N O I S 

## O F F I C I A L 

## RE P O R T S Appellate Court

AT&T Teleholdings

, Inc. v. De

partm ent of Revenue , 2012 IL App (1st) 110493

Appellate Court Caption AT& T TEL EHOL DI NGS, I NC., f/k/a SBC T E L E HOL DI NGS, I NC., f /k /a A M E RI T E CH CO RP O RA T I O N
, a n d AFF I L IATED CO M PA N I E S, Plaintiffs-Appellants, v. THE DEPARTMEN T OF REVENUE and BRIAN A. HAMER, as Direc tor, Depa rtment of R evenue , State of I llinois , Def

endants-A

ppellees.

District & N o. First District, F ifth Division
Docke t No. 1-11-0493

Rule 23 Order

filed
Rehea ringdenied Rule 23 Order withdrawn Opinion filed J une 1, 2012 September 5, 2012

September 24, 2012 September 28, 2012

Held (Note : This syl lab us

con st it ute s no par t of the opi nio n of the cour t but has bee n pre

par ed b y the Repo rt er o

f D e c i s i o n s f

o r t h e

c o n v e n i e n c e o

f t h e

rea der

. ) Plaintiff corporat i ons’ objection to the methodology employ ed by the Dep artment of Revenue in deter mining the allocation of a 2002 net capital loss for purposes of using the loss to offse t an ear lier capital g ain

was reje cted on the g round that the combined apportionment method proposed by

plaintiffs does not apply

to net capital losses.

Dec ision Under
Review Appea l from the C ircuit Court of Cook County , No. 09-COEL -008; the Hon. J ames Murr ay , J r., Judge, pr esiding

.J udg ment Affir med.

Counsel on Appea l Thomas H. Do nohoe, Catherine A. Battin, and J ulie M. Skelton, all of McDe rmott W i ll & Emery L L P, of Chicag o, and Wil liam L

. Goldman, of Washington, D.C., for

appellants.

L isa Madig an, Attorney Ge n eral, of Chicag o (Michae l A. Scodro, Solicitor Gene ral, and Br ian F. Ba rov, Assistant Atto rn ey Gene ral, of counsel), f

or appe llees.

Panel J USTI CE HOWSE delivered the judg ment of the c ourt, with opinion. Presiding J ustice McB ride and J ustice Taylor concur red in the judgme nt and opinion.

OP INION

¶ 1 Plaintiff, AT& T Telehol d i n gs , I n c. , fo rm er l y k n o wn as Am er i t ec h Corporation (Amer itech), appea ls from a judgme nt of the circ uit court aff irming an administrative decision of the Director of the I llinois Depa rtment of R evenue (Dire ctor) denying, in part,

a corpor ate tax ref

und. The re fu n d wa s based on Ameritec h’s reque st to car ry back a net capital loss suffe red in 2002 by its pare nt company , SBC Teleholding s, Inc. (SBC), to offse t

a capital g ain that only Ameritec h repor ted in 1999. Whil e the parties ag ree that Ameritec h
may car ry back a portion of SBC’s 2002 net capital loss to offse t an earlier capital g ain, they disag ree over the methodology used i n deter mining how much of the 2002 ne t capital loss is attributable to Ameritec h. 1

¶ 2 BA CKGROUND ¶ 3 The rec ord indicates, and the parties d o n o t d i s p u t e, t h at on October 8, 1999, SBC acquir ed all of Ameritec h’s stock. For fede ral income tax purposes, the two companies at that time beca me members of SBC’s fede ral consolidated group, which is simply a g roup of companies whose stock is owned by the same entity

. In contra st, for I llinois income tax purposes, Ameritec h and SBC rema ined distinct businesses until Dec ember 31, 1999. Under

Fol lowi ng J ust ic e J ose ph Gord on’ s dea th, J ust ic e Nat han ie l Howse has inh er it ed the cas e. 1 J ust ic e Howse has re viewed the bri ef s and re cor d. J ust ic e T aylor has bee n add ed as a pan el m ember andhas re viewed the br ie fs

.
-2-both fede ral and I llinois law, Ameritech was requ i red to file t wo t ax returns for 1999: one

for the prea cquisition short tax period and one for the postacquisition short tax period. After the acquisit ion, but befor e Dec ember 31, 1999, Ameritec h sold its “over lapping wirele ss assets” and repor

ted a capital g ain of $2.7 billion from the sale. Once Ameritec h combined the capital g ains and losses for the postacquisition period, it repor ted a net capital g ain o f $1,582,653,052. ¶ 4 On J an uary 1, 2000, for the purposes of I llinois i n co m e t ax , Am er i t ec h an d i t s subsidiaries beca

me part of SBC’s un i t ary business group, which, unlike a consolidated
g roup, is a g roup of c ompanies that ar e not only related by common owner ship, but whose business activities are integ rate d with, depende nt on, and contribute to eac h other (35 I L CS 5/1501(a)( 27) (West 2000) ). Thus, from 2000 forwa rd Ameritec h and its subsidiaries wer e included in the I llinois combined income tax returns that SBC filed ea ch year

. ¶ 5 On i ts 2002 I llinois income tax return, the SBC unitary g roup re ported a

net combined capital l o s s o f $ 3
, 634,691,714. At that time, the SBC unitary g roup included the former 2 members of

the Amer itech unitary

g roup, which appar ently consisted of Ameritec h and its subsidiaries whose business ac tiviti es wer e sufficie ntly integrate d to be part of that unitary busi n es s gro up

. The net capital loss was part of SBC’s business income, which could be

car ried back to both Ameritec h’s postacquisition tax pe riod in 1999 as well as SBC’s 1999
tax y ear

. The capital loss had to be divided, howeve r, beca use in 1999, Ameritec h and SBC

wer e not part of the same unitary business g roup. Thus, Am er itech then filed an amende d income tax return for the postacquisition period in 1999, which car ried back a portion of the 2002 loss to offse t Ameritec h’s capital g ain, and claimed a ref und of $ 3 8
, 2 0 4,008 for that period. The method used by Ameritec h to allocate the portion of t he 2002 SBC net capital losses to Ameritech is not per tinent to this appea l. ¶ 6 The I llinois Depa rtment of Revenue (De partment) a udited Ameritec h’s amende d income
tax return to deter

mine the portion of SBC’s 2002 net capital loss that could be car ried back by Ameritec h’s postacquisition tax period. In deter mining the car

ry back amount, the auditor excluded the capital losses of the members of the SBC consolidated g roup in 2002 that wer e not members of the SBC unitary g roup in 2 002. Since companies need only be related by

common owner ship in order to be members of a fede ral consolidated g roup, not all members

o f t h e 2002 SBC consolidated g roup wer e members of its unitary business g roup, whi ch included only those companies whose businesses are integrate d. The auditor then allocate d

a portion of the net capital loss to eac h member of the 2002 SBC unitary g roup that repor ted

a loss on the 2 0 02 SBC consolidated fede ral income tax return. The share of the loss allocate d to eac h member of the 2002 SBC unitary group was deter mined by multipl ying the total net capital loss by a fra ction, the numerator of which was that member’ s capital loss in 2002 and the denominator of which is the total capital loss of the SBC unitary business g roup

I n it s fe der al inc om e ta x re tur n, the SBC con sol ida te d group re por te d an even la rger cap it al 2 los s, of $3,8 00,8 59,0 83, bec aus e the SBC con sol ida te d group inc lud ed m embers whic h wer e not par t of the SBC uni ta ry group. For fe der al inc om e ta x purpos es, SBC car ri ed bac k $1,5 82,6 53,0 52 of tha t net cap it al los s to it s 1999 fe der al con sol ida te d re tur n to off set the gain fr om the sal e of Am er it ech ’s

ass et s.

-3-in 2002. Fr om the members who wer e allocate d a s h ar e of the 2002 net capital loss, the

auditor then identified those who wer e members of the Ameritec h unitary business g roup in the postacquisition tax peri od in 1999. Those two members, Ameritec h and Ameritec h De v el opment, wer e the only ones elig ible to car ry back the 2002 net capital loss es t o t h e Ameritec h’s 1999 postacquisition tax period. As a result of the auditor’s adjustments, the Depa rtment allocate d 2.089%, or $83,920,965, of t he net capital loss to Ameritec h, which resulted in a re fu n d o f $ 1,969,436 for Ameritec h’s postacquisition tax period. Since the method used by the Depa rtment allocate s a portion of the net capital los s o n l y to those members that actua lly repor ted a loss, this method is consistent with the separ ate- company

acc ounting method, which apportions to eac h company its separ ate and identifiable ear nings and re ports to the state the e arning s of the compa nies within the state. ¶ 7 Ameritec h protested the partial denial of its ref und and proposed a revised methodology
to deter mine the share of the net capital loss which could be used to offse t Ameritec h’s g ain during that period. In that protest, Ameritec h relied on the combined apportionment method, which consists of attributing a share of the net cap i t al l o s s to eac h member of the SBC unitary g roup based on eac h member’ s sales or g ross rec eipts. Under that m et h o d
, each member’ s share of the net capital losses was based on the proportion of that member’ s g ross

rec eipts to the sum of all members’ g ross rec eipts. As Ameritec h noted, section 304(e) of the I llinois Income Tax Act (Ac t) require s this method to be used by unitary business g roups to apportion their business income betwee n I llinois and other states, wher e members of those business g roups operate in other states. See 35 I L CS 5/304(e) (West 2002). Thus, unlike the method used by t h e De p artment, Ameritec h included the loss repor ted by members of the 2002 SBC consolidated g roup that we re n ot members of the 2002 SBC unitary business
g roup and attributed share s of that capital loss to all members of the 2002 SBC unitary g roup, reg ardle ss of whether they had actua lly incurre d a l oss in 2002. Under this method, 28.2903% of the 2002 net capital loss would be apportioned to Ameritec h, which would result in a car

ry back of $1,028,264,669 of the net capital loss and a ref und of $36,234,572. ¶ 8 After an administrative h ea ri n g, t h e ad m i n i s t ra t i v e l aw judge (AL J ) upheld the Depa rtment’s partial denial of Ameritec h’s ref und. In doing so, the AL J noted that “sec tion 304(e) *** contains no languag e authorizing or even addre ssing, the allocation o f ca p i t al losses to members of a unit ary business g roup for purposes of determiningnet ca pital loss

car ry backs.” He reje cted Amerit ech’ s claim that “eve ry aspec t of the deter mination of income taxable to I llinois derive d by a member

of a multicorporate unitar y business g roup must be deter

mined using formular

y apportio n m en t.” He then found that the separ ate

acc ounting method, which allocate s share s of a loss to the members of a unitary g roup which
actua lly incurre d it, is expressly authorized by the Act, and that section 100.5270 of title 86 of the I llinois Administrative Code (86 I ll. Adm. Code 100.5270 (2002)) provides a method for allocating net capital losses, which was appropr iately u s ed by the Depa rtment. In addition, the AL J reje cted Ameritec h’s relianc e on sections 100.2340 and 100.2350 of title 86 of the Administrative Code, which g o v er n t he attribution of “combined I llinois net losses,” which is not the same as capital losses, among members of a unitary business g roup for c arr y back to a separ ate r eturn year

. ¶ 9 Fur

thermore
, the AL J reje cted Ameritec h’s attack on the validity of section 100.5270 of

-4-title 86 of the Administrative Code as waived. Simi larly
, the AL J reje cted, on procedural

g rounds, Ameritec h’s other alternative argument, based on section 304(f) of the Act, that the application of the Depa

rtment’s method of allocating the 2002 net capital loss would lead to

a “distorted result” in this case

. L astly
, the AL J declined to ad d re s s Am eritec h’s constitutional arguments beca use he lacke d authority to adjudicate the constitutionalit y of the Act. The Direc tor ac cepte d the AL J ’s re commendations in his final order

. ¶ 10 The circ uit court aff irmed the Direc tor’s decision, and upheld the Depa rtment’s re liance

on sectio n 1 0 0

. 5 2 70 as authority for the Depa rtment’s method of allocating the 2002 net capital loss to Ameritec h. In doing so, the circ uit court noted that the Depa rtment’s method “foc uses on 20 0 2 ca p i t al losses experience d by Ameritec h entities within AT& T.” On the other hand, under Ameritec h’s proposed method, “a substantial part of the capital loss would

come from SBC entities in 2002,” which would result in a windfall to Ameritec h. Acc ording
to the circ uit court, preve ntin g a wi ndfall would not “ra ise a constitutional issue.” As to Ameritec h’s other arguments, the circ uit court adopted t h e ALJ ’s conclusions of law by ref ere nce. ¶ 11 On appea l, Ameritec h now contends th at t h e Di re ct o r er re d i n up h o l d i n g t he Depart m en t ’s method of computing the portion of the 2002 net capital loss that was at t ri butable to Ameritec h beca use that net capital loss must be distributed amo n g t h e members of the 2002 unitary g roup in acc ordanc e with the combined apportionment method mandated by section 3 0 4 (e ) o f the Act. Acc ording to Ameritec h, section 304(e)
, which require s unitary business g roups to apportion t h ei r business income using the combined apportionment method descr ibed above, g overns the manner in which such unitary business
g roups must apportion their net c apital losses.

¶ 12 ANALYSI S ¶ 13 We first no t e t h at when an appea l is taken from the entry of a judgme nt by the circ uit
court on administrative revie w, i t i s t he decision of the administrative ag ency , not the judgme nt of the circ uit c ourt, which is unde r revie w. See, e.g. , Provena Covenant Medic al Center v. Departme nt of Rev enue , 2 3 6 I l l

. 2d 368, 386 (2010). Fur ther, the parties do not dispute that the applicable met h o d o logy to calc ulate the portion of the net capital loss attributable to Amer itech is a que stion of law, which this court r eviews de novo

. Id. ¶ 14 The Act taxes corpor ations on the “net income” ear ned in or as a resident of I llinois . See 35 I L CS 5/201(a) (West 2002). The Ac t define s net i ncome as that portion of a taxpay er’ s “base income” f

or that tax y ear

that is allocable to I llinois under the provisions of article 3 of the Ac t. 35 IL CS 5/202 (West 2002)

. Ba se income, in tur n, is de fined as a corpor ation’s “taxable income” (35 I L CS 5/203(b)(1) (West 2002)), which is that taxp ay er’ s fede ral taxable income, with t h e m o d i fications to such fede ral taxable income as mandated by section 203(b) of the Act, with additions and subtractions that are not pertinent to this case

. See 35 I L CS 5/2 0 3 (e ) (W es t 2002); Bodine Electric Co. v. Allphin
, 81 I ll. 2d 502, 506 (1980). Thus, the reporta

ble taxable income for

purposes of f

eder al income taxes provides the “star ting point upon which State tax liabilit y is computed.” Bodine , 81 I ll. 2d at 506. ¶ 15 Un der those provisions, once a corpor ation’s base income is compu t ed b as ed o n i t s

-5-fede ral taxable inc ome, it is allocate d to I llinois in acc ordanc e to the provisions of article 3

of the Act, including section 304(e)
, which g overns the apportionment of base income from unitary bus in e s s gr o ups. Section 304(e) provides that wher e two or more corpor ations eng ag e in a unitary business, a part of which is conducte d in I llinois by one or more members of the
g roup, the business income attributable to I llinois by those members shall be apportioned by

means of th e c o mb in e d a

p p o r ti o nment method. 35 I L CS 5/304(e) (West 2002). As previously mentioned, a unitary business g roup is a group of aff iliated corpor ations “whos e b u s i n es s activities are integ rate d with, depende nt up o n and contribute to eac h other.” 35 I L CS 5/1501(a)( 27) (West 2002). T h e combined apportionment method, as descr ibed above, assig ns a share of a unitary g roup’s income to I llinois based on the perc entag e of sales which took place inside I llinois

. 35 I L CS 5/304(h) (W est 2002). I n fac t, a unit ary business g roup is treated as one single taxpay er for the purp o s e o f I llinois income tax returns. 35 I L CS 5/502(e) ( West 2002). ¶ 16 The combined apportionment method for the base income of unitary groups re cog nizes that income ear

ned by unitary businesses “ca nnot be acc urate ly apportioned by use of
separ ate acc ounting since that method does not take acc ount of eac h operation’s contribution
to the income of the business as a whole; it is also subject to manipulation by shifting income
to States with more favor able tax climates.” Citi zens Utiliti es Co. ofIllinois v. Departme nt of Rev enue , 111 I ll. 2d 32, 39 (1986). Ameritec h corr ectly notes that prior to the enac tment of section 304(e)
, which now require s the use of the combined appor tionment method, our supreme c ourt held t hat s uch method should be applied to deter mine the percenta g e of net income attributable to I llinois for activities of eac h corpor ate member of a unitary business
g roup. Caterpillar Tractor Co. v. Lenckos
, 84 I ll. 2d 102, 114 (1981). In doing so, the court stated:
“T y pically
, the corpor ation’s transac tions and the income derive d from them actua l l y repr esent the business eff orts of the indivi dual corpor ation, plus eff orts of other and possibly all members of the unitary business operation. As a result, the claimed income of eac h member of the g roup standing al o n e d o es n ot, in a rea l sense, ref lect the conducting of a unitary business operation beca use the income is not attributable solely to the eff ort of the pa

rticular c orporation.” Id. at 108. ¶ 17 We do not disput e that the c ombined base inc ome of a member of a unitary g roup is to be apportioned to I llinois under the combined apportionment method. Howeve r, at issue in this case is not the manner in which to apportion the base income of the SBC unitary g roup, but only the methodology to allocate SBC’s 2002 net capital loss, which, as explained below, is a pre- apportionment element of those members’ base income. As the circ uit court corr ectly noted, section 304(e) specifi c a ll y a d d r e s s e s th e a

p p o r ti o nme nt of a corpor ation’s base income
to arrive at eac h member’ s net income and is silent on the question of apportionment of net capital losses. In fac t, as noted above, it is o n l y af ter a corpor ation’s base income is computed that a portion of it is allocate d to I llinois
, and as the Depa rtment notes, net capital losses and the car

ry back of those lo s s es ar e elements of a corpor ation’s fede ral taxable income, which is the starting point to compute its base income, befor e it is apportioned
among members of a unitary business g roup. Such taxable income, in turn, is deter mined as i f a corpor ate tax payer “had filed a separate return for federa l income tax purposes for t h e

-6-taxable y ear and eac h prec edin g t ax ab le y ear for which it was a member of an aff iliated
g roup.” 35 I L CS 5/ 203(e) (2)( E) (West 2002). ¶ 18 Fur

thermore
, as the AL J corr ectly n o t ed i n h i s re co mmendation, the Depa rtment’s
regulation, section 100.5270, provides that the allocation of capital losses to be car ried back
to a prior y ear are g overne d b y Trea sury Regulations §§ 1.1502-21 and 1.1502-22, which
g o v e r n fede ral consolidated net capital losses. See 86 I ll. Adm. Code 100.5270 (2002). Those fede ral regulations, i n tu rn, provide that the s hare of t he net capital losses attributable to a member of a fede ral consolidated return is the ratio of that member’ s own losses divided by the losses incurre d by any other members who have incurre d losses that y ear

. See Trea s. Reg

. §§ 1.1502-22(b) (3), 1.1502-21(b) (2)( iv)(B ) (as amende d in 1999). Those regulations are consistent with the principle that net ca p i t al losses are a prea pportionment element of a taxpay er’ s base income, which is computed befor e such base income is apportioned among the member s of a unitar

y business g roup. Section 100.5270(a ) states:
“The combined base income shal l be deter mined by first computing the g roup’s combined tax ab l e i n come and then modifying this amount by the combined g roup’s combined I llinois addition and subtrac tion modification amounts. 1) Combined net income. The desig nated agen t wi ll deter mine combined base i n co m e by trea

ting all members of the unitary business g roup *** as if t h ey constituted a fede ral consolidated g roup and by apply ing the fede ral regulations for deter mining consolidate d taxable income ***. ***
Ex ample 1. Corporations A an d B proper ly make an elec tion under I I TA Section 502(e)
, o r ar e properly require d to file a combined return under [Act] Section 502(e)

. On a separ ate return basis, A’s fede ral taxable income would be

a loss of ($500). This amount does not include an excess capital l o s s o f $75 pursuant to Interna l Revenue Code Section 1211(a)

. B’ s fede ral taxable income is $1,000 of which $100 is a capital g ain. As a result of apply ing T rea sury

Reg

. Section 1.1502-11 and S ec t i o n 1.1502-22 (26 CFR 1.1502-22), the combined fe d er al taxable income for A and B is $425.” 86 I ll. Adm. Code 100.5270 (a ) (2002). ¶ 19 In turn, Trea sury Regulation § 1.1502-22, incorpo ra t ed by section 100.5270, states, in pertinent pa

rt: “I f any consolidated net capital loss that is attributable to a member may be car ried to a

s eparate return y ear under the principles of § 1.1502-21(b) (2), the amount o f t h e consolidated net capital loss attributable to the member is apportioned and car ried to the
separ ate r eturn year

(appor tioned loss).” Tre as. Reg . § 1.1502-22(b) (3) ( as ame nded in 1999). ¶ 20 Trea sury Regulation § 1.15 0 2 -2 1 (b )( 2 ), i n co rp o ra t ed i n § 1.1502-22(b) (3), whic h addre sses the allocation of net operating losses of a fede ral consolidated g roup to allow them
to car ry back a portion of those losses to a separ ate return y ear , and whose principles g overn the manner

in which net ca

pital losses are c arr ied bac k to separa te re turn y ear s, provides: “[T] he perc entag e of the [consolidated net operating loss] attributable to a member shall equal the separ ate net operating loss of the member for the y ear of the loss divided by the

-7-sum of the separ ate net operating losses for that y ear of all members having such losses. For this purpose, the separ ate net operating loss of a member is deter mined by computing the [consolidated net opera ting loss] by ref

ere nce to only the member’ s items of income,
g ain, deduction, and loss, including the member’ s losses and deductions actua lly absorbe d by the g roup in the taxable y ear (whe ther or not ab s orbed by the member) .” Trea s. Reg . § 1.1502-21(b) (2)( iv)(B ) (a s amende d in 1999). ¶ 21 Acc ording ly
, under section 100.5270(a) (1), the n et ca p i t al l osses of the members of a unitary g roup are prea

pportionment elements of eac h member’ s base income, to be allocate d
among them in the manner presc ribed by Trea sury Regulations §§ 1.1502-21 and 1.1502-22. Under those rules, net capital losses are allocate d and car ried back in the same manner as net operating losses on a fede ral consolidated return, and such allocation is based on the proportion of a member’ s own losses to the total loss incurre d that y ea r. See Trea s. Reg

. §§ 1.1502-22(b) (3), 1.1502-21(b)(2) (iv)(B ) (as amende d in 1999). Thus, this rule clarifies that, contra

ry to Ameritec h’s contention, the section 304(e) require ment that the base income of a u nitary g roup is to be allocate d under the combined apportionment method does not apply to net capital losses, whic h are a pre apportionment ele ment of that base income. ¶ 22 The Depa

rtment in this case , as explained above, allocate d the SBC 2002 net capital loss to the members of the S BC unit ary business g roup by multipl ying the total net capital loss by a fra ction, the numerator of which was eac h individual member’ s own separ ate net capital loss and the d en o m i n ator of which was the 2002 SBC total net capital loss. That

me th o d o lo gy , which is consistent with a separ ate company acc ounting, follows the allocati o n presc ribed by section 100. 5 2 70(a) (1) and Trea sury Regulations §§ 1.1502-22 and 1.1502-21. ¶ 23 Ameritec h argues that interpre ting section 100.5270(a) (1) to presc ribe the allocation of the net capital loss of a unitary g roup member in the manner descr ibed above is inconsistent with section 1401(b)( 2) of the Act, which states that the Depa rtment shall prom ulgate regulations that require al l t ax p ayers that are members of the s ame unitary business g roup to be treated as one taxpay er. 35 I L CS 5/1401(b)(2) (West 2002). Acc ording to Ameritec h, it is “per verse ” to interpre t one of those regulations, namely
, section 100.5270(a )( 1 ), to require the net capital loss of a member of a unitary g roup to be allocate d on a separ ate basis

as presc ribed by the fede ral regulation under sections 1.1502-22 and 1.1502-21. In a related
argument, Ameritec h maintains that if the Depa rtment’s interpre tation of section 100.5270 is corr ect, the regulat i o n i s invalid beca use i t would then conflict with section 1401(b)(2),

as well as section 502(e) of the Ac t, which provides that a ll members of a unitary business
g roup shall “be treated as one taxpay er” (35 I L CS 5/502(e) (West 2002)), and section 304(e) of the Act, which, as mentioned above, require s m em bers of unitary g roups to use the combined appor

tionment method to compute their net income. ¶ 24 Those contentions are unpersua sive for sever al re as o n s

. T h e l an gu age o f sec tions 1401(b)( 2 ) an d 5 0 2 (e) of the Act is silent on the manner on which members of unitary business g roups are to allocate prea pportionment elements of their base income, such as net capital losses. Section 502(e) simply require s members of a unitary business g roup to be
treated as a single taxpay er so as to file a combined return. See 35 I L CS 5 / 5 0 2 (e ) (West 2002). Simi larly
, 1401(b)( 2) mere ly direc ts the Depa rtment to promulg ate rules requiring the
treatment o f unitary g roup members as a single taxpay er for the purposes of filing a

-8-combined return and deter mining their joint tax liability

. 35 I L CS 1402(b)( 2) (West 1991). L ikewise, as noted above, section 304(e) require s members of a unitary business g roup, afte r

eac h member’ s base income is separ ately computed, to apportion their cumulative base income using the combined apportionment method, but it likewise is silent on the allocation method of eac h element that constitutes that b ase income. Section 100.5270, on the other hand, does not require members of a unitary business group to allocate their combined base income using any method other than the combined apportionment. Instead, it provides that befor e that base income is apportioned, it must be computed by applying the pertinent fede ral
regulations, which, as explained above, require any net capital losses incur re d by those

m em b ers to be allocate d in a manner consistent with the separ ate- company acc ounting method. 86 I ll. Adm. Code 100.5270(a) (1) (2002); Trea s. Reg

. §§ 1.1502-22(b) (3), 1.1502- 21(b)( 2)(iv)( B) (as amende d in 1999). Thus, there is no inconsistency b et we en t h ose provisions and section 100.5270(a )(1) , which simply provides that bef

ore the base inc ome of a unitary g roup is ap p o rt i o n ed among its members under the combined apportionment method, such base income is computed in acc ordanc e with the fede ral regulations which
g overn, inter alia , the allocation of net ca pital losses. ¶ 25 Fur

thermore
, contra

ry to Ameritec h’s contention
, o u r s up re m e co u rt ’s d ec i sion in Caterpillar Tractor
, 84 I ll. 2d at 106-14, does not support the proposition that the combined
app o rt i o n m en t method presc ribed by section 304(e) of the Act must be used to allocate elements of a tax payer’ s base income befor e such base income is apportioned to members of a unitary business group. The taxpay er in that case soug ht to apportion its alre ady computed base in co m e t o m ember s of a unitary business g roup befor e section 304(a) was

enac ted. Id. at 107-08. Whil e the court in that case rec og nized the appropr iateness of utiliz ing the combined apportionment method to allocate the base income of a unitary business g roup, and there by compute the net income apportionable to eac h member for I llinois tax purposes, the decision is si lent with respe ct to the allocation of prea pportionment elements of those
g roup member s’ base income. ¶ 26 Simi larly
, Ameritec h’s relianc e on Barclays Bank PLC v. F r a nchise Tax Board
, 512 U.S. 298, 307 (1994), Container Corp. of America v. Franchise Tax Board
, 463 U.S. 159, 174 (1983), and Edison Calif ornia Stores, Inc. v. McColgan
, 183 P.2d 16, 18 (Cal. 1947), is misplaced. Barclays Bank PLC
, 512 U.S. at 307, and Contain er Co r p

. , 463 U.S. at 174, involve the constitutionalit y of California’s world-wide combined apportionment s y stems for a taxpay er’ s income, but do not addre ss whether that method would apply to a particula r element of that taxpay er’ s base income. L ikewise, Edison Calif ornia Stores
, 183 P.2d at 18,

mere ly stands for the principle that the net income of members of

a unitary business g roup should be computed usingthe combined a pportionment method. ¶ 27 Ameritec h next argues that section 203(e) (2)( E) of the Act, which, as previously noted,
states that the taxable income of a corpor ation that filed a consolidated tax re t u rn shall be deter mined as if that corpor ation had filed a sepa rate return, is inapplica

ble to members of

a unitary g roup. Acc ording to Ameritec h, all elements of a unitary g roup mem ber’ s base income must be computed under the combined apportionment method beca use under section 502(e) of the Ac t, all members of that gr oup must be treated as one taxpay er. In support of that contention, Ameritec h cites section 100.2405(c) (5) of title 8 6 o f the I llinois

-9-Administrative Code, which provide s: “[F]or a corpor ation that is a member of an aff iliated g roup of corpor ations fi l i n g a fede ral consolidated income tax re turn for the taxable year , taxable inc ome deter mined

as if such corpor ation had filed a separ ate return fede rally for the taxabl e y ear and for

eac h prec eding taxable y ear for wh i ch i t was a member of an aff iliated g roup and also deter m i n ed as if the elec tion provided under Interna l Revenue Code section 243(b)( 2) had been in eff

ect for such y ear s. (I I TA Section 203(e) (2)( E)). Howeve r, for purposes of computing the combined taxable income and combined base income of a unitary b u s in e

ss group for the pur

poses o f IIT A Sections 304(a) and 502( e)

, Section 100.5270 requires the unitary business group to use federal consolidated return regulations[.] ” (Emphasis added.) 86 I ll. Adm. Code 100.2405(c)( 5) (2008)

. ¶ 28 We disag ree with Ameritec h’s interpre tation of that regulat i o n. Section 502(e) , which require s members of a unitary business g roup to file a combined I llinois income tax return,

as discussed above, is silent on the allocati o n m et h o d of elements of a taxpay er’ s base income, such as net capital losses. In fac t, the emphasized languag e of section 100.2405 does
not appea r to sug g es t t h at section 203(e) (2)( E) is inapplicable to members of a unitary business g roup. Instead, it confirms that the fede ral reg ulations incorporated by ref ere nce in section 100.5270 g overn the computation of the combined taxable income and base income of such members of a unitary business g roup. As discussed above, the al l o ca t i o n of net capital income of unitary business g roup members, pursuant to those fede ral reg ulations, is base d o n t h e ra t i o of that member’ s capital losses to the total capital losses of the unitary
g roup. ¶ 29 Ameritec h next contends that even if section 100.5 2 7 0 (a )( 1 ) i s v al i d
, I llinois later “dec oupled” its rules g overning the allocation and car ry back of all losses incurre d by unitary business g roups when sections 100.2350(c) and 100.2340(a) of title 86 of the Administrative Code came into eff

ect. Acc ording to Ameritec h, those regulations have repla ced the conce pt of net operating losses with that of “I llinois net loss,” and now r equire that I llinois net loss be apportioned among members of a unitary group und er t h e combi ned apportionment method. In support of that conte ntion, Ameritech note s that section 100.2350(c ) states:
“The portion of a combined I llinois net loss attributable to a member of a [un i t ary business] g roup is an amount equal to the combined I llinois net loss of the g roup multipl ied by a fraction, the numerator of which is what wo u ld have been the separ ate I llinois net loss of such corpor ation had a combined re t u rn n ot been filed, and the denominator of which is the sum of what would have been the separ ate I llinois net losses of all members of the g roup in such y ear having such losses. The separ ate I llinois net loss of a member of the g roup shall be deter mi ned pursuant to Sections 100.2320 and 100.2340 above.” 86 I ll. Adm. Code 100.2350(c)( 3) (2002)

. ¶ 30 Section 100.2340 of title 86 of the Code, in tur n, provides, in pe rtinent part, that “[i] f a combined return is not filed, any su ch l o s s wi ll be apportioned among all members of the [uni tary busin es s] g roup based on eac h member’ s apportionment fac tors in I llinois as compar ed to their combined apportionment fac tors ever y wher e.” 86 I ll. Adm. Code 100.2340(a) (1987). Thus, Ameritec h maintains the allocation of any losses by a member of

-10-a unitary business g roup, for I llinois tax purposes, is now g overne d by sections 100.2340 and

100.2350 which require I llinois net losses to be allo ca t ed p u rsuant to the combined apportionment method, not by the fe dera l reg

ulations describe d above. ¶ 31 Whil e we ag ree that sections 100.2340 and 100.2350 now g overn the apportionment of I l l i n ois net losses by members of a unitary business g roup, they have no bear ing on the allocation of net capital losses among members of such group. Those two sections followed the amendment of section 203(b) of the Act, which chang ed the manner in which taxpay ers may deduct their net opera ting losses, which are now incorporated in the conce pt of I llinois
net losses, as codified in section 207 of the Act. Net I llinois losses are neg ative net income,

or the amount of loss, afte r a taxpay er applies to its base income the modif i ca t i o ns

enumer ated in section 203(b) of the Act and the allocation provisions of article 3 of the Act. 35 I L CS 5/20 7 (a) (West 2002). A net operating loss, howeve r, i s the ex cess of deductions

over that party ’s income derive d from any source

. See 86 I ll. Admin. Code 100.2330 (2005); Trea s. Reg

. § 1.1502-21(e ) (as amende d in 1999); 26 U.S.C. § 61(a) (1988). Thus, it appea rs that the differ ence betwee n an I llinois net loss and a net opera ting loss is that an I llinois net loss is a post-apportionment deduction, which c an be car ried back and forwa

rd ag ainst the net i ncome of a tax payer, while a net ope ratingloss is a preapportionment subt rac tion to a taxpay er’ s base income. A net capital loss, on the other hand, is the excess of losses from the sale of a taxpay er’ s capital assets over any g ains from sales of other capital assets. 26 U.S.C. § 1211(a) (1988); 26 U.S.C. § 1222(10) (1988). Such loss is, there for e, re adily distinguishable from I llinois net losses, whose apportionment is g ov ern ed b y sections 100.2340 and 100.2350. ¶ 32 In fac t, Ameritec h does not appea r to argue that net capital losses are part of I llinois net losses. Instead, it appare ntly contends that since I llinois has re place d its deductions for net
operating losses with the deduction for I llinois net losses, and since the fe dera l reg ulations that g overn the allocation of net capital losses follow the allocation principles of the fede ral rules g overning net operating losses, net capital losses are no longe r g overne d by the fede ral
regulations. Acc ording to Ameritec h, the new provisions, which repla ced the conce pt of net operating losses with I llinois n et losses have supersede d section 100.5270(a)(1) insofar as it incorpora

ted by ref ere nce the allocation methods for both net opera ting losse s an d net capital losses descr ibed by Trea sury Regulations §§ 1.1502-21 and 1.1502-22. That contention is unpersua sive. ¶ 33 As the Depa

rtment corr ectly notes, sectio n 1 0 0

. 2 3 0 0 (c ) ex p l i ci t ly states that “[t] he
treatment of capital losses is se parate and apar t from the rule s g overning I llinois net losses and I llinois net loss deductions. Capital los ses will continue to be g overne d by fede ral provisions.” 86 I ll. Adm. Code 23 0 0 (c) (2000). Thus, reg ardle ss of whether the fede ral
regulations incorpora

ted by ref ere nce i n section 100.5270(a) (1) have any applicability to I llinois net losses, it is clea r from that languag e that the fede ral regulations, sections 1.1502- 22 and 1

. 1 5 02-21, are the only provisions that g overn the allocation of capital losses to members of

a unitary g roup. ¶ 34 Ameritec h claims that the section 100.2300(c) ref ers only to t h e fe d er al ru l e whi ch mandates that capital losses can be deducte d only to the offse t cap i t al g ains, and no other kind of income. In doing so, Ameritec h cites to the provisi o n o f s ection 100.2300(c) that

-11-states t hat “[ f]or fede ral purposes, capital losses are permitted onl y to t h e ex tent of capital

g ains and the car

ry back of capital losses is permitted only to the extent of capital g ains in the

car ry back y ear .” 86 I ll. Adm. Code 100.2300(c) (2000). Howeve r, it is well established that “[ w] hen the words of a statute are unambiguous, *** ‘judicial inquiry is complet e. ’ ” Connecticut National Bank v. Germain
, 503 U.S. 249, 254 (1992) (quoting Rubin v. United St a t es , 449 U.S. 424, 430 (1981))

. Her e, the languag e of the first two sentenc es of section 100.2300(c) contains no restr i ct i ons to the extent to which fede ral regulations continue to g overn the allocation of capit al l o sses. Instead, the first sentenc e broadly states that the
treatment of capital losses is “sepa rate and apar

t from rules g overning I llinois net losses,” which square ly contra dicts Ameritec h’s contention that the only fede ral rules applicable to capital losses are the ones which limit the extent to which those losses may be used to offse t a g ain. ¶ 35 This conclusion seems consistent with the fac t that net capital l o s s es h av e historically been treate d differ ently than net operating losses. For instance, unlike net operating losses and I llinois net losses, it is undisputed that, as noted above, capital losses may only be used
to offse t capital g ains. 86 I ll. Ad m

. Code 2300(c) (2000); 26 U.S.C. § 1211(a) (1988). Treating ca pital losses differ ently than I llinois net losses for apportionment purposes also
appea rs consistent with the principles for the use of the combined apportionment method in computing the net income of members of a unitary business g roup. As previously discussed, the combined apportionment of base income is the most acc urate method to compute the net income of a unitary business g roup member beca use the income g ener ated by that member “is not attributable solely to the eff ort of the particula

r corpor ation.” Caterpillar
, 84 I ll. 2d
at 108. I llinois net losses, as descr ibed above, result when a taxpay er’ s net income happens
to be neg ative, or a loss. 35 I L CS 5/207(a) (West 2002). Thus, that ty pe of loss results from the oper ations of the unitary business g roup as a

whole, and it therefor e is more a ccur ately

measure d under the combined apportionment method, which takes into acc ount the activities of all members of the g roup. Net capital losses, on the other hand, are only the excess losses fr o m s al es of capital assets over the g ains from sales of other capital assets. 26 U.S. C

. § 1222(10) (1988). Capital assets, in turn, are a taxpay er’ s proper ty which does not include, inter alia , rea l property

used in its trade or business, or supplies of a ty pe reg ularly used or consumed by the taxpay er in the ordinary course of business. 26 U.S.C. § 1221(a) (2), (8) (1988). I t appea

rs from that languag e that the ne t capital losses of the member of a unit ary business may not have the s am e co n nection to the operations of the unitary business as a whole, and may not result from the activities of other members to the same extent as its net income or its I lli n o is net loss. Thus, section 100.2300, which provides that capital losses, unlike I llinois net losses, continue to be g overne d by fede ral regulations, whi ch in turn, provide for the ap p o rtionment of those losses on a separ ate basis, are consistent with the principle of a ccur ately

allocating

those losses to eac h member. ¶ 36 Amer i t ec h n ex t ap p ear s to argue that the Depa rtment’s apportionment method of the 2002 SBC net capital loss is err oneous beca use it is inconsistent wi t h t he Depa rtment’s apportionment of the net capital g ain repor ted by the Ameritec h Group in its postacquisition short tax period in 1999 and the apportionment of SBC Unitary Group’s business income in 2002. Ameritec h explains that the Depa rtment used the combined apportionment method in

-12-order to calc ulate how much of Ameritec h’s 1999 g ain and SBC’s 2002 income was taxable

in I llinois . Howeve r, Amer itech has failed to state a cog ent argument to suppor t the notion that such inconsistent treatment should be g rounds for reve rsal of the Depa rtment’s decision,

or to cite any authority in support of that proposition a s require d by I llinois Supreme Court Rule 341(h)( 7 ) (e ff

. J uly 1, 2008). Ameritec h mere ly states that the Depa rtment “schizophrenica lly ” treats a net capital loss repor ted by a member of a unitary business g roup

as being attributable solely to that member, while it treats net capital g ains as apportionable
among the entire unitary business g roup. Since plaintiff has failed to co m ply with Rule 341(h) and articulate a cohesive leg al argument supported by authority
, we cannot rea ch the

m erits of its contention. Bank of Rave nswood v. Maiorella
, 104 I ll. App. 3d 1 0 7 2
, 1 0 7 4 (1982). ¶ 37 We further note that in 2 0 0 2
, t h e co m b ined apportionment method was only used to apportion S BC’s base i ncome pursuant to sec t i o n 304(a) of t he Act, afte r t he base income

was a lrea dy

computed. Additionally , it appear s that in 1999, the Department si mply relied

on the combined apportionment m ethod t o al l o ca t e only the combined base income of t he Ameritec h unitary g roup, not to apportion the net capital g ain ear ned by eac h member of the
g roup whe n computing those members’ individual preappor tionment base income. ¶ 38 I n fa ct, section 1.1502-22, which g overns the computation of both capita l gai n s an d losses, provides that both capital ga ins and los ses of members of a consolid at ed group are to be ag g reg ated and deter mined for the entire g roup as a whole for the y ear that those g ains

or losses are repor

ted. See Trea s. Reg

. § 1.1502-22(a ), (b) (as amende d in 1999). Howeve r,

as explained above, that same regulation unequivoca lly provides that when net capital losses of a member of that g roup are car ried back to a separ ate return year , that member’ s share of those losses are apportioned based o n t he ratio of that member’ s losses to the g roup total losses, as t he Department has done in this case

. Thus, even if the apportionment of S BC’s 2002 net capital losses, solely for car ry back purposes, was not computed in the same manner

as Ameritec h ’s 1 9 9 9 n et capital g ains, as part of Ameritec h’s income during that period alone, that differ entiation is consistent with the Depa rtment’s regulations g overning the apportionment of such g ains as losses. Acc ording l y , t h e Depa rtment’s method used to allocate SBC’s 2002 net capital losses does not ap p ea r i m p roper mere ly beca use of the

manner in which it apportioned Ameritec h’s 1999 net capital gai n, or SBC’s 2002 base income. ¶ 39 Ameritec h next contends, alternatively
, that if the Depa rtment’s method of allocatingthe 2002 SBC net capital loss is permitted under section 304(e) of the Act, Ameritec h would be entitled to a

n alternative method of apportionment under section 304(f) of the Act. Section 304(f) prov i d es that “[i] f the allocation and apportionment provisions of subsections (a)
t hroug h (e) and of subsection (h) do not fairly repr esent the extent of a person’ s busine s s activity in this State, the person may petition for, or the Direc tor may require ” an alterna tive method “to eff

ectuate an equitable allocation and apportionment of the person’ s business income.” 35 I L CS 5/3 0 4 ( f ) ( We s t 2 0 0 2). Ameritec h maintains that the Depa rtment’s method, which allocate s 2.3089% of the $3.6 billion 2002 SBC net capital loss, allows the car ry back of one-thirtee nth of the portion of the net capital loss that would be allocate d to Ameritec h under that company ’s method, namely
, 28.2903% of that net capital los s

. As a result,

-13-Ameritec h’s 1999 net capital g ain was reduc ed mere ly from $1.6 billion to $1.5 billion under

the Depa rtment’s method, while that g ain would have been reduc ed all the way down to $0.6 billion under Ameritec h’s method. ¶ 40 The regulations interpre ting sec t i o n 3 0 4 (f ) p ro v i d e t h at an al t ernative method is
appropr iate “if the application of the statutory formula will lead to a g rossly distorted result in a particula

r case .” 8 6 I l l

. Ad m

. Code 100.3390(c) (1993). Howeve r, an alterna tive apportionment method may not be invoked “mer ely beca use it rea che s a differ ent apportionment perc entag e than the required s t at u t o ry formula.” Id. In fac t, the party who seeks to utiliz e an alternative apportionment method has the burden of “proving by clea r and
cog ent evidenc e that the statutory formula results in the taxation of extraterritorial values and
operates unrea sonably and arbitra rily in attributing to I llinois a perc entag e of income which is out of proportion to the business transac ted in this S tate.” Id. ¶ 41 For instance, in Lakehead Pipe Line Co. v. Departme nt of Rev enue , 192 I ll. App. 3d 756, 764-66 (1989), this court held that there was no g ross distortion so as to justify an alterna tive apportionment m et hod wher e the method used did not take into acc ount the company ’s I llinois capital assets or employ ee activity
, b o t h of which wer e im portant t o deter mine the
extent of t h e co mpany ’s I llinois business. In that case , the court found that such g ross distortion wa s not pr esent wher e the differ ence betwee n the income a pportioned to I llinois under the statutory

formula a

nd the income that would be apportioned taking those fac tors into acc ount was betwee n 30% and 140%, depending on the y ear

. Id. at 764. In contra st, the ty pe of evidenc e that justifies an alternative apportioned under section 304(f) i s illust rate d in Miami Corp. v. Departme nt of Rev enue , 212 I ll. App. 3d 702, 706-10 (1991). In that case , the statutory apportionment formula led to a g ross distortion o f t he taxpay er’ s incomeproducing activities in I llinois
, wher e that formula failed to take into acc ount the intang ible value of oil and g as lease s derive d from its L ouisiana land and, conseque ntly
, did not ref lect that 80% of the t axpay er’ s income was g ener ated by those intang ible assets. Id. at 709-11. The court noted, howeve r, that the fa ct that the statutory formula c aused a

n incre ase in the taxpay er’ s I llinois tax liability from $719,000 to $2.4 milli on was not, in itself, indicative of malapportionment mere ly beca use of the size of the inc rea se. Id. at 708. ¶ 42 Her e, aside from compar ing the amount of the 1999 capital g ain that it would be able to offset u s i n g the combined apportionment method of the 2002 SBC net capital loss, Ameritec h reiterat es its previous arguments that section 304(a) mandates that method of apportionment of a unit ary g roup member’ s base income and that section 502(e) require s those members to be treated as one taxpay er. As discussed above, howeve r, sections 304(a) and 502(e) do not require the combined apportionment method to be employ ed to allocate
net capital losses, which are a p re -a p p o rt ionment element of the base income. Thus, we conclude that the mere fac t that the use of the combined a pportionment method to allocate those losses would chang e Ameritec h’s I llinois tax liability for 1999 does not mean that the

use of the Depa

rtment’s method cause d a g ross distortion in Ameritec h’s income attributable to I llinois

. ¶ 43 L astly
, Ameritec h contends that if the Depa rtment’s method to allocate the 2002 SBC net

ca p ital loss is consistent with the Act, the statute would violate the due pro ce s s an d

commerc e clause s of the United States Constit ution. I t maintains that the Depa rtment’s use

-14-of t he sepa ra t e-company acc ounting method to allocate the 2002 SBC net capital losses is

unconstitutional beca

use it denies Ameritec h the appropriate car ry back amount of those net capital losses and, as a result, it imposes a tax on Ameritec h’s 1999 net capital g ains that is “out of a ll appropriate proportion” to the business tra nsacte d by

Ameritec h in I llinois

. ¶ 44 I t is well es t ab l i s h ed that to preve nt states from taxi ng income g ener ated outside their border s, the due proce ss and commerc e clause s require that “ther e be ‘som e definite link,

some minimum connec tion, betwee n a state and the person, proper ty or transac tion it seeks
to tax.’ ” All i ed-Signal, Inc. v. Director, Division of Taxation
, 504 U.S. 768, 777 (1992) (quoting Miller Brothers Co. v. Maryland
, 347 U.S. 340, 344-45 (1954))

. Thus, while states have “wide authority to devise formulae for an ac cu ra t e assessment of a corpor ation’s intrastate va lue or income ,” ther e is a “ nece ssary limiton the States’ author ity to tax value or i ncome that cannot in fairne ss be attributed to the t axpay er’ s activities in the S tate.” Id.
at 780. How ev er, “[t] he Constit ution does not ‘invalidat[e] an apportionment formula whene ver it may result in taxation of some income that did not have its source in the taxi ng State.’ ” ( Emphasis in origina l.) Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 169-70 (1983) (quoting Moorman Manufacturing Co. v. Bair
, 437 U.S. 267, 272 (1978))

. Instead, simil arly to the require ment for an alternative method under section 304(f)
, a taxpay er must s h o w “ ‘by “cle ar and cog ent evidenc e” that the income attributed to the State is in fac t “out of all appropr iate proportions to the business transac ted

... in that State” [citation] or has “led to a g rossly distorted result,” [citation] .’ ” Id. at 170 (quoting Moorman
, 437 U.S. at 274). ¶ 45 Her e, Ameritec h does not argue that the net capital g ains taxed by I llinois in 1999 wer e not gen er at ed wi thin this state. Instead, Ameritec h claims that it should have been apportioned a

larg er a mount of the 2002 SBC net capital losses. In support of its argument that the tax imposed on its 1999 net capital g ains is disproport i o n al t o t he business that Ameritec h transact ed in I llinois
, Ameritec h relies larg ely on the differ ence betwee n the
amount of losses that Ameritec h soug ht to allocate
, namely
, $1,028,264,699, and the amount that the Depa

rtment ag ree d to allocate to Ameritec h, namely
, $83,920,965. Si m i l ar t o the analy sis of section 304(f), above, the m ere differ ence in the apportioned amount, howeve r larg e, is not itself sufficie nt to show that the Depa rtment’s methodology is unconstitutionally disproportionate. S ee Citi zens Ut i l i ty Co. of Illinois v. Department of Rev enue , 111 I ll. 2d 32, 53 (1986) (“ba

re perc entag es [of the incre ase in taxation resulting from the Depa rtment’s formula] without explan at i o n are not helpful” to deter mine whether the Depa

rtment’s apportionment is unconstitutional). ¶ 46 Fu rt her, Ameritec h claims that the Depa rtment acte d inconsistent l y i n ap p l y i n g t h e separ ate- company method to the 2002 SBC net ca p i t al l o ss among members of the SBC

u n i t ary g roup beca

use it previously used the combined apportionment method to attrib u t e Ameritec h’s 1999 net capital g ains among the members of the Ameritec h unitary g roup. That contention is unpersua sive for the rea sons discussed in para g raphs 45 a nd 46. ¶ 47 Ameritec h’s relianc e on Container Corp.
, 463 U.S. at 181, is misplaced. In that case , the
court reje cted a taxpay er’ s argument that the state had unconstitutionally applied a combined apportionment method to allocat e the income of its fore ign subsidiaries. In doing so, the court found that when a unitar y business exi sts, separate accountingis not constitut ionally

-15-require d beca use the income of members of such unitary business gro up s co m es from the

o p er ation of the business as a whole, and it become s “misleading ” to char acte ri z e s u ch income as h av i n g “a s ingle identifiable source .” (Interna l quotation marks omitted.) Id. at 181. Howeve r, mere ly beca use the combined apportionment method to allocate a taxpay er’ s income is not unconst i t u t i o nal, it does not follow from that that the use of the separ ate

acc ounting to allocate an item of a taxpay er’ s base income is nece ssarily disproportionate to the business that the taxpay er tra nsacts in I llinois

. In fac t, Ameritec h does not question the Depa rtment’s apportionment of its base income, but only of the 2002 SBC net capital losses, which, as discussed ab o v e, is a prea pportionment element of Ameritec h’s base income. Acc ording ly
, we conclude that Ameritec h has fail ed to meet its burden to prove that the Depa rtment’s method of allocating the portion of the 2002 SBC net capital loss to be car ried back to of

fset Amer itech’s 1999 ne t capital g ains is unconstituti onal. ¶ 48 For the fore g oing rea sons, we aff irm the judgme nt of the circ uit c ourt of Cook County

.

¶ 49 Affir

med.

-16-