43-102.A.5 declares the intent of the legislature to tax each corporation on its income derived from sources within this state. 61 defines gross income to include gain on the sale of property.
Capital gains are includable in the Arizona gross income of a corporation.
While the Treasury regulations pertaining to federal consolidated returns allow capital losses of one corporation participating in filing a federal consolidated return to be offset against the capital gains of other corporations participating in filing that consolidated return, there is no Arizona provision allowing such an offset when a separate company return is filed to Arizona. A.R.S. 43-942 allows the department to distribute income or deductions among affiliated taxpayers if necessary to clearly reflect income of a taxpayer. A.R.S. 43-102.A.5 declares the intent of the legislature to impose a tax on each corporation based on taxable income from sources within this state. Therefore, when computing taxable income of a separate corporation in Arizona, the capital losses of one corporation may not be used to offset the capital gains of another separate corporation, although both corporations may be participating in filing the same consolidated group return for federal tax purposes. A corporation that participates in filing a federal consolidated return may be required to file a separate corporation return to Arizona.