Opinion ID: 1990251
Heading Depth: 1
Heading Rank: 5

Heading: Combined Reporting.

Text: Another approach is for the taxing state to treat the entire enterprise as in essence the entity to be taxed and to apply its apportionment formula to the entire group's combined income. This is the approach known as the unitary-business/formula-apportionment method or the combined reporting method. As one commentator has stated: The purpose of combined reporting is to determine the income of a multistate taxpayer attributable to a given state. This is accomplished by applying the apportionment factors of the unitary business to the unitary group's business income.... A combined report does not necessarily involve a single tax return for the group. Instead, it is the name given to a series of calculations by which a unitary business apportions its income on a geographic basis. In California, for example, each entity with nexus files its own return providing schedules reflecting the unitary activity. However, the [Franchise Tax Board] has adopted procedures under which some or all of the taxpayer-members of a unitary group may elect to file a group return. Giles Sutton, Comparison of Group Reporting Methods and Sourcing of Income, 9 St. 8s Loc. Tax Law. 29 (2004). A unitary business for this purpose is generally understood to be a multi-state, multi-corporate enterprise whose operations conducted in one state benefit and are benefited by the operations conducted in another state or states. If its various parts are interdependent and of mutual benefit so as to form one integral business rather than several business entities, it is unitary. Pioneer Container Corporation v. Beshears, 235 Kan. 745, 684 P.2d 396, 399 (1984) (internal quotation marks omitted). Where the components of a multi-state enterprise are integrated by sufficient unity of ownership, operation, and use, the unitary business concept has been applied. Edison California Stores v. McColgan, 30 Cal.2d 472, 183 P.2d 16 (1947); Armco Inc. v. Revenue Cabinet, 748 S.W.2d 372 (Ky.1988). The United States Supreme Court has held that the unitary-business/formulary-apportionment approach to corporate income taxation passes constitutional muster provided that at least some part of [the unitary business] is conducted in the state, that there be some bond of ownership or control uniting the purported `unitary business,' and that the out-of-State activities of the purported `unitary business be related in some concrete way to the in-State activities.' Container Corporation of America v. Franchise Tax Board, 463 U.S. 159, 166, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983). Indeed, at least in part because of its elevation of the enterprise's substance over its form, the U.S. Supreme Court has characterized the unitary business principle as the linchpin of apportionability in the field of state income taxation. Mobil Oil Corporation, supra, 445 U.S. at 440, 100 S.Ct. 1223. [2]