Oregon Administrative Rules › Chapter 150 - DEPARTMENT OF REVENUE › Division 317 - CORPORATION EXCISE TAX ACT OF 1929: RULES AND GENERAL PROVISIONS › Section 150-317-0510 - Unitary Business

Current through Register Vol. 63, No. 7, July 1, 2024
(1) This
			 rule is based partially on a model regulation adopted by the Multistate Tax
			 Commission to promote uniform treatment of the unitary business principle by
			 the states. Sections (3) through (10) of this rule apply to tax years beginning
			 on or after January 1, 2007. However, the principles outlined in those sections
			 may also be applied to years prior to 2007 to the extent that they reflect case
			 history and department policy.
(2)
			 The presence of all of the factors described in ORS
			 317.705(3) will
			 demonstrate that a unitary business exists, but the presence of one or two such
			 factors may also demonstrate the flow of value requisite for a unitary business
			 determination.
(3) The Concept of a
			 Unitary Business. A unitary business is a single economic enterprise that is
			 made up either of separate parts of a single business entity or of a commonly
			 controlled group of business entities that are sufficiently interdependent,
			 integrated, and interrelated through their activities so as to provide a
			 synergy and mutual benefit that produces a sharing or exchange of value among
			 them and a significant flow of value to the separate parts. This flow of value
			 to a business entity located in Oregon that comes from being part of a unitary
			 business conducted both within and without Oregon is what provides the
			 constitutional due process "definite link and minimum connection" necessary for
			 Oregon to apportion apportionable income of the unitary business, even if that
			 income arises in part from activities conducted outside of Oregon. The
			 apportionable income of the unitary business is then apportioned to Oregon
			 using the apportionment formula set forth in ORS
			 314.650. This sharing or
			 exchange of value may also be described as requiring that the operation of one
			 part of the business be dependent upon, or contribute to, the operation of
			 another part of the business. Phrased in the disjunctive, the foregoing means
			 that if the activities of one business either contributes to the activities of
			 another business or are dependent upon the activities of another business,
			 those businesses are part of a unitary business.
(4) Constitutional Requirement for a Unitary
			 Business. The sharing or exchange of value described in section (3) that
			 defines the scope of a unitary business requires more than the mere flow of
			 funds arising out of a passive investment or from the financial strength
			 contributed by a distinct business undertaking that has no operational
			 relationship to the unitary business. In Oregon, the unitary business principle
			 will be applied to the fullest extent allowed by the U.S. Constitution. The
			 unitary business principle will not be applied where the result would not be
			 allowed by the U.S. Constitution.
(5) Separate Trades or Businesses Conducted
			 within a Single Entity. A single entity may have more than one unitary
			 business. In such cases it is necessary to determine the apportionable income
			 attributable to each separate unitary business as well as its nonapportionable
			 income, which is specifically allocated. The apportionable income of each
			 unitary business is then apportioned by a formula that takes into consideration
			 the in-state and the out-of-state factors that relate to the respective unitary
			 business whose income is being apportioned.
(6) Unitary Business Unaffected by Formal
			 Business Organization. A unitary business may exist within a single business
			 entity or among a commonly controlled group of business entities.
(7) Determination of a Unitary Business. A
			 unitary business is characterized by significant flows of value evidenced by
			 factors such as those described in Mobil Oil Corp. v. Vermont, 445 U.S. 425
			 (1980): centralization of management, economies of scale, and functional
			 integration. These factors provide evidence of whether the business activities
			 operate as an integrated whole or exhibit substantial mutual interdependence.
			 Facts suggesting the presence of the factors mentioned above should be analyzed
			 in combination for their cumulative effect and not in isolation. A particular
			 business operation may be suggestive of one or more of the factors mentioned
			 above.
(8) Description and
			 Illustration of Centralization of Management, Economies of Scale, and
			 Functional Integration.
(a) Centralization of
			 Management. Centralization of management exists when directors, officers,
			 and/or other management employees jointly participate in the management
			 decisions that affect the respective business activities and that may also
			 operate to the benefit of the entire economic enterprise. Centralization of
			 management can exist whether the centralization is effected from a parent
			 entity to a subsidiary entity, from a subsidiary entity to a parent entity,
			 from one subsidiary entity to another, from one division within a single
			 business entity to another division within a business entity, or from any
			 combination of the foregoing. Centralization of management may exist even when
			 day-to-day management responsibility and accountability has been decentralized,
			 so long as the management has an ongoing operational role with respect to the
			 business activities. An operational role can be effected through mandates,
			 consensus building, or an overall operational strategy of the business, or any
			 other mechanism that establishes joint management.
(A) Facts Providing Evidence of
			 Centralization of Management. Evidence of centralization of management is
			 provided when common officers participate in the decisions relating to the
			 business operations of the different segments. Centralization of management may
			 exist when management shares or applies knowledge and expertise among the parts
			 of the business. Existence of common officers and directors, while relevant to
			 a showing of centralization of management, does not alone provide evidence of
			 centralization of management. Common officers are more likely to provide
			 evidence of centralization of management than are common directors.
(B) Stewardship Distinguished. Centralized
			 efforts to fulfill stewardship oversight are not evidence of centralization of
			 management. Stewardship oversight consists of those activities that any owner
			 would take to review the performance of or safeguard an investment. Stewardship
			 oversight is distinguished from those activities that an owner may take to
			 enhance value by integrating one or more significant operating aspects of one
			 business activity with the other business activities of the owner. For example,
			 implementing reporting requirements or mere approval of capital expenditures
			 may evidence only stewardship oversight.