Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › 1998-1 - Comprehensive Corporation Income Tax Regulations › Rule 26-51-701 - MULTISTATE BUSINESS INCOME › Rule 3.26-51-701 - Unitary Business Principle

Current through Register Vol. 49, No. 6, June, 2024
The determination of whether income constitutes business
					 income depends upon whether a unitary relationship exists between the income in
					 question and a taxpayer's business activities in Arkansas. A unitary
					 relationship exists when an activity conducted in one state benefits or is
					 benefited by an activity in another state. Certain factors of profitability
					 such as functional integration, centralization of management and economies of
					 scale may be used to indicate the contribution made to the overall business
					 enterprise. These factors help determine the existence of a unitary
					 relationship for classifying income as business income. However, Arkansas will
					 not accept returns filed on a unitary combined basis.
The determination of whether the activities of the taxpayer
					 constitute a single trade or business or more than one trade or business will
					 turn on the facts in each case. In general, the activities of the taxpayer will
					 be considered a single business if there is evidence to indicate that the
					 segments under consideration are integrated with, dependent upon or contribute
					 to each other and the operations of the taxpayer as a whole. The following
					 factors are considered to be reliable indicators of a single trade or business,
					 and the presence of any of these factors creates a strong presumption that the
					 activities of the taxpayer constitute a single trade or business:
(1) Same type of business. A taxpayer is
				  generally engaged in a single trade or business when all of its activities are
				  in the same general line. For example, a taxpayer which operates a chain of
				  retail grocery stores will almost always be engaged in a single trade or
				  business.
(2) Steps in a vertical
				  process. A taxpayer is almost always engaged in a single trade or business when
				  its various divisions or segments are engaged in different steps in a large,
				  vertically structured enterprise. For example, a taxpayer which explores for
				  and mines copper ores; concentrates, smelts and refines the copper ores; and
				  fabricates the refined copper into consumer products is engaged in a single
				  trade or business, regardless of the fact that the various steps in the process
				  are operated substantially independently of each other with only general
				  supervision from the taxpayer's executive offices.
(3) Strong centralized management. A taxpayer
				  which might otherwise be considered as engaged in more than one trade or
				  business is properly considered as engaged in one trade or business when there
				  is a strong central management, coupled with the existence of centralized
				  departments for such functions as financing, advertising, research, or
				  purchasing. Thus, some conglomerates may properly be considered as engaged in
				  only one trade or business when the central executive officers are normally
				  involved in the operations of the various divisions and there are centralized
				  offices which perform for the divisions the normal matters which a truly
				  independent business would perform for itself, such as accounting, personnel,
				  insurance, legal, purchasing, advertising, or financing.