North Carolina Administrative Code › Title 17 - REVENUE › Chapter 05 - CORPORATE FRANCHISE, INCOME, AND INSURANCE TAXES › Subchapter F - SECRETARY'S AUTHORITY TO ADJUST NET INCOME OR TO REQUIRE A COMBINED RETURN › Section .0500 - COMBINED RETURNS › Section 05F .0501 - METHODOLOGY WHEN COMBINED RETURN REQUIRED OR PERMITTED

Current through Register Vol. 39, No. 2, July 15, 2024
When the Secretary requires or allows a corporate taxpayer to submit
													 a combined return, the following methodology applies:
(1) The
											  starting point is the federal taxable income of the pro forma 1120 for each corporation. The 1120s shall
											  represent federal taxable income "as if" each corporation were not part of a consolidated federal
											  1120;
(2) The taxpayer shall combine the pro forma 1120s of the
											  corporations to be included in the combined group; this results in a combination of each corporation's line
											  items in determining combined income.
(3) The taxpayer shall
											  eliminate the intercompany transactions between members of the combined group in arriving at combined federal
											  taxable income.
(4) The taxpayer shall make North Carolina
											  modifications (additions and subtractions) as provided in
											  G.S.
											  105-130.5 to determine combined income subject to apportionment.
(5) The taxpayer shall include in the apportionment factors the property,
											  payroll, and sales of all corporations included in the combined group as provided in
											  G.S.
											  105-130.4. All sales into North Carolina by entities within the combined
											  group shall be included in the sales factor numerator. Where an intercompany transaction has occurred and
											  been eliminated in the calculation of combined income, this amount shall also be eliminated from the
											  numerator and denominator of the applicable factor.
(6) Only one
											  apportionment factor is to be calculated by the taxpayer for the combined group. Unless otherwise provided in
											  this section, the standard three factor formula, which uses the apportionment factors of property, payroll,
											  and sales, shall be used. If more than 50 percent of the group's combined income subject to apportionment is
											  generated from a business activity subject to special apportionment under subsections (m) through (s1) of
											  G.S.
											  105-130.4, then that apportionment formula shall be used for the entire
											  group. If the taxpayer believes the statutory apportionment method that otherwise applies to the combined
											  group subjects a greater portion of the group's income to tax than is attributable to its business in this
											  State, the taxpayer may propose, and the Secretary shall consider, an alternative method of apportionment.
											  The taxpayer shall apply the combined apportionment factor to the combined apportionable income to determine
											  income apportioned to this State.
(7) The taxpayer shall add any
											  nonapportionable income allocated to North Carolina to the income apportioned to this State to determine
											  total income subject to North Carolina tax.
(8) The combined
											  group's income subject to tax may be reduced by net economic losses sustained by a corporation that becomes a
											  member of the group, but not fully used by that corporation prior to becoming a member of the combined group,
											  subject to the provisions of G.S.
											  105-130.8. Net economic losses brought by a corporation into the group
											  remain with that corporation and, to the extent not used by the group during the years the corporation is
											  part of the group, may be claimed by the corporation in the tax years after the corporation ceases to be a
											  part of the group. The tax years that the corporation is part of the combined group count toward the 15-year
											  carryforward period authorized in G.S.
											  105-130.8. A net economic loss sustained by the group in a combined return
											  year shall be allocated among the members of the group that reported losses on their pro forma 1120s, after
											  elimination of intercompany transactions between members of the combined group. The amount allocated to each
											  member shall be determined by dividing that member's loss (after elimination of intercompany transactions) by
											  the total losses (after elimination of intercompany transactions) of all members of the combined group in
											  that tax year. To the extent not used by the group during the years the corporation is part of the group, the
											  group's net economic losses allocated to a corporation that is a member of the group may be claimed by the
											  corporation in the tax years after the corporation ceases to be a part of the group. Net economic losses
											  shall be considered used in order beginning with earliest tax year. If more than one corporation brought net
											  economic losses from the same tax year into the combined group and a portion of the losses from that year is
											  used, the amount of used net economic losses shall be prorated among the members bringing losses from that
											  year based on the percentage of each member's losses to the total losses carried forward from that
											  year.
(9) The combined group's income tax may be reduced by tax
											  credits earned by a member of the combined group, but not fully used by that entity prior to becoming a
											  member of the combined group, subject to the provisions of the specific credits. Because the eligibility for
											  a tax credit is determined at the separate entity level, any unused installment or carryforward of a tax
											  credit earned by a member of the combined group remains with that entity if that entity is no longer a member
											  of the combined group or the group is no longer required to file a combined return. This is applicable
											  whether the credit was earned by the entity before becoming a member of the combined group or while a member
											  of the combined group. For franchise tax purposes, the tax credits may only be used by the entity generating
											  the credit unless the group also files a combined return for franchise tax purposes.
Authority
													 G.S.
													 105-130.4;
													 105-130.5;
													 105-130.5A;
													 105-130.8;
													 105-262.1;
Eff. January 31, 2013;
Pursuant to G.S.
													 150B-21.3A, rule is necessary without substantive public interest Eff.
													 August 19, 2017.