California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 17 - Allocation of Income › Article 1 - General Provisions › Section 25106.5

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(See Cal. Code Regs., tit. 18, §
											25106.5-0
						for the table of contents for this section, and all other regulations adopted
						under Rev. and Tax. Code, §
											25106.5.)
(a) Combined Reporting. In General. Each
					 taxpayer whose income and apportionment factor data are permitted or required
					 to be included in a combined report shall report income in the manner provided
					 by this regulation, and, to the extent applicable, other regulations adopted
					 under Section
					 25106.5 of the Revenue and
					 Taxation Code.
(b) Definitions.
					 Unless otherwise indicated, the following definitions shall apply to all
					 regulations adopted under Section
					 25106.5 of the Revenue and
					 Taxation Code.
(1) Combined Report. "Combined
					 report" refers to the schedules which are attached to the tax return, required
					 to be filed by Section
					 18601
					 of the Revenue and Taxation Code, of one or more taxpayer members, which
					 reports the taxpayer member's income from sources within this state under the
					 combined reporting method.
(2)
					 Combined Reporting Method. "Combined reporting method" refers to the method
					 under which the total combined report business income of all members of the
					 combined reporting group is apportioned to California, to determine each
					 taxpayer member's combined report business income from California
					 sources.
(3) Combined Reporting
					 Group. "Combined reporting group" refers to those corporations with business
					 income that is permitted or required to be included in a particular combined
					 report under Sections
					 25101,
					 25101.15,
					 25102,
					 or
					 25104
					 of the Revenue and Taxation Code, limited, if applicable, by application of
					 Section
					 23801(c)
					 of the Revenue and Taxation Code, or the effects of a water's edge election
					 under Section
					 25110
					 of the Revenue and Taxation Code, or any other provision of law which precludes
					 income and apportionment data of an entity from being included in a combined
					 report. A combined reporting group also refers to those S Corporations whose
					 income is required to be included in a combined report under Section
					 23801(d)
					 of the Revenue and Taxation Code.
(4) Business Income. "Business income" is as
					 defined under Section
					 25120(a)
					 of the Revenue and Taxation Code.
(5) Combined Report Business Income.
					 "Combined report business income" is the business income of a member of a
					 combined reporting group permitted or required to be included in the combined
					 report of the group.
(6) Total
					 Group Combined Report Business Income. "Total group combined report business
					 income" is the sum or net of all combined report business income of all members
					 of the combined reporting group.
(7) Nonbusiness Income. "Nonbusiness income"
					 is the income of a member of the combined reporting group which is subject to
					 allocation under Sections
					 25123
					 through
					 25127
					 of the Revenue and Taxation Code.
(8) Apportionment. "Apportionment" is the
					 means by which total group combined report business income is sourced to this
					 state under Sections
					 25128 through
					 25137 and Section
					 25141
					 of the Revenue and Taxation Code.
(9) Taxpayer Member's California
					 Apportionment Percentage. "Taxpayer member's California apportionment
					 percentage" refers to the fraction, determined under Section
					 25128
					 of the Revenue and Taxation Code, used to apportion the total group combined
					 report business income to a taxpayer member in this state.
(10) Member. "Member" is a single corporation
					 in a combined reporting group. The term includes both taxpayer members and all
					 other corporations included in the combined reporting group.
(11) Taxpayer Member. "Taxpayer member" is a
					 corporation which is a member of a combined reporting group which is required
					 to file a tax return in this state.
(12) Principal Member. "Principal member" is
					 the member of the combined reporting group whose accounting period is used as a
					 reference period for all members of the combined reporting group to aggregate
					 and apportion combined report business income of the group. A principal member
					 need not be a taxpayer member.
(A)
					 Corporations Described. Once a principal member has been determined under this
					 subsection (b)(12), that member shall remain the principal member for all
					 succeeding periods that it is a member of the combined reporting group, except
					 as permitted by the Franchise Tax Board. Except as otherwise provided, the
					 "principal member" is the corporation first described below:
1. The parent corporation which is a member
					 of the combined reporting group. A "parent corporation" is a corporation which
					 is a parent corporation to all members of the combined reporting group, within
					 the meaning of Revenue and Taxation Code section
					 25105,
					 subdivision (b)(1).
2. If the group
					 does not have a parent corporation which is a member of the combined reporting
					 group, as so defined, the "principal member" is a corporation which is a lower
					 tier parent to all members of the combined report. A "lower tier parent" is the
					 first corporation, down the chain of corporations, which is a member of the
					 combined reporting group and which would have constituted a "parent
					 corporation" to all members of the combined group if all corporations which own
					 or constructively own that corporation under Section
					 25105(b)(1)
					 of the Revenue and Taxation Code were disregarded.
3. If the group does not have a "lower tier
					 parent" corporation which is a member of the combined reporting group, the
					 "principal member" is the taxpayer member of the combined reporting group
					 expected to have, on a recurring basis, the largest amount, by value, of real
					 and tangible personal property in the state. The value of real and tangible
					 personal property shall be determined pursuant to the property factor
					 provisions of Sections
					 25129
					 through
					 25131
					 of the Revenue and Taxation Code and the regulations
					 thereunder.
(B) Election
					 to Designate Principal Member. Notwithstanding the provisions of preceding
					 subsection (A) of this subsection (b)(12), in the first taxable year in which a
					 combined report is required, the taxpayer members of the combined reporting
					 group may elect to treat any other member of the combined reporting group as
					 the "principal member," so long as consistently treated as such for the year of
					 the election and thereafter. Thereafter, the taxpayer members may change their
					 principal member only with consent of the Franchise Tax Board.
(C) Inconsistent Principal Member. In the
					 event that members of a combined reporting group have filed with inconsistent
					 principal members (including cases where two or more groups of corporations
					 erroneously filed as distinct combined reporting groups) the determination of
					 the appropriate principal member shall be in accordance with the provisions of
					 subsection (A) of this subsection (b)(12), unless, in the discretion of the
					 Franchise Tax Board, selection of another principal member would result in a
					 lesser compliance burden for the taxpayer members.
(13) Group Return. "Group return" is that
					 return filed on behalf of eligible electing taxpayer members of a combined
					 reporting group included on the electing key corporation's Schedule R-7 of
					 Schedule R filed in conjunction with its California Form 100.
(14) Key Corporation. "Key corporation" is
					 the taxpayer member which files a group return described by subsection (b)(13)
					 of this regulation on behalf of the electing taxpayer members of the combined
					 reporting group as agent and surety for the electing members.
(15) Fiscalization. "Fiscalization" is the
					 process under which a member of a combined reporting group aligns the income
					 and apportionment data from its accounting period to the accounting period of
					 the principal member.
(16)
					 California Source Carryover Item. "California source carryover item" refers to
					 an item of income or loss allocated or apportioned in an earlier year, required
					 to be taken into account as California source income during the taxable year,
					 other than a net operating loss.
(17) Income. Unless the context otherwise
					 requires, the term "income" includes loss.
(18) Total Separate Net Income. Except as
					 otherwise provided, " total separate net income" is the total net income from
					 all sources of a member of a combined reporting group from its separate books
					 of account as determined under the Revenue and Taxation Code, before allocation
					 and apportionment.
(19)
					 Corporation. "Corporation," as used in this regulation and other regulations
					 under Section
					 25106.5
					 of the Revenue and Taxation Code, is any of the entities described as a
					 corporation in Section
					 23038
					 of the Revenue and Taxation Code, including banks. In the application of
					 Section
					 25102
					 of the Revenue and Taxation Code, the term "corporation" also includes
					 "persons" as the term is used in that section.
(20) California Apportionment Percentage.
					 "California apportionment percentage" means the fraction, determined under
					 Section 25128 or Section
					 25128.5
					 of the Revenue and Taxation Code, used to apportion the total group combined
					 report business income to this state.
(21) Intrastate Apportionment. "Intrastate
					 apportionment" means the method by which the total group combined report
					 business income, which has been apportioned to this state, is assigned to each
					 of the taxpayer members of the combined reporting group.
(22) Intrastate Apportionment Percentage.
					 "Intrastate apportionment percentage" means the percentage applied by a
					 specific taxpayer member to the total group combined report business income,
					 after apportionment to this state, in order to determine that member's share of
					 the group's California source apportioned Income.