United States: Finding uniqueness in the concept of unitary enterprise: the new multi-state income tax on the predictor of the enterprise unit

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As the United States Supreme Court (the “United States Supreme Court” or the “Court”) pointed out in
Container Corp. Am. v. Franchise Tax Bd., “The concept of a unitary enterprise is not … so to speak, unitary: there are variations on the theme, and many of them are logically consistent with the underlying principles behind the approach.” While states, at least the majority of them, today interpret the scope of a unitary enterprise to the fullest extent permitted by the United States Constitution, the United States Supreme Court has failed no uniform legal standard established for what qualifies as a “unitary enterprise unit.”

In Brothers Butler v. Mccolgan, the Supreme Courts of California and the United States used the “three unit test”, which looked at unit of ownership, unit of operation and unit of use. The Supreme Court of the United States (the “Supreme Court of the United States” or the “Court”) in Mobil Oil Corp. vs. Commissioner of taxes, announced that a unitary enterprise must be characterized by significant value streams evidenced by factors such as functional integration, centralization of management and economies of scale. These factors determine whether business activities function as an integrated whole or have substantial mutual interdependence.

Unitarian business concept in the context of combined unitary reporting

Currently, more than 30 states require a mandatory combined declaration (“combined declaration”) for income tax purposes. The common theme of the combined reporting regimes of the different states tries to capture the concept of unitary enterprise, at least for the enterprise unit, as a single economic enterprise composed of a group of commercial entities under common ownership. which are sufficiently interdependent, integrated and / or interrelated through their activities in order to provide synergy and mutual benefit which produce a flow of value between them.

With a few exceptions, states that require combined reports (“Combined States”) share similar common property definitions for combined reports. However, while a majority of states combined through statutory and decision-making law rely on the “Hallmarks” test identified by the Court in
Mobile to identify unitary affairs, other states still focus on the unit of operations and use in Butler brothers.

Regardless of which test is used to determine unit activity, all of the statements combined indicate that unit activity for combined reporting purposes should be determined based on the facts and circumstances of each case. Combined states prescribe different factors for the determination, which can range from a few presumptions for a unitary business to more than a dozen factors for finding a unitary business based on the combined state tax. Nonetheless, it is a common theme among the Combined States that the facts or factors identified indicating the existence or non-existence of a factor must be considered collectively in determining their overall impact on the existence of a unitary enterprise.

Multi-State Income Tax: Unitary Business by Blue J

Blue J’s Unit Business Predictor is specially designed to predict whether a group of affiliated business entities conducts a unitary business inside and outside of a state, based on your fact model. Blue J’s predictive module captures the oneness of the unitary business concept across different combined states (except Arizona, which is treated with a different analysis) by determining the appropriate weight for each of the 19 commonly used factors. identified in the decision-making law for the conclusion of a unitary enterprise.

Additionally, the Unit Business Decision Finder allows practitioners to browse cases and administrative decisions dealing with unit business analysis on the business unit and filter by status, results, and factors.

Annex states currently requiring a mandatory combined declaration

State / Jurisdiction Corporate tax reporting requirements Authority
Alaska Combined Alaska Statistics. § 43.20.031 (i)
Arizona Combined Arizona Admin. Reference R15-2D-401
California Combined

Cal. Reg. tit. 18, § 25106.5

Cal. Rev. & Taxes. Code § 25105

Colorado Combined

Colon. Rev. Stat. § 39-22-303 (12)

1 Colo. Regs code. § 201-2: 39-22-303.11 (a)

Connecticut Combined Conn. Gen. Stat. §§ 12-213, 218e, 218f, 223a
Washington DC Combined DC Code § 47-1805.02a
Hawaii Combined Hawthorn. Code R. 18-235-22-03
Idaho Combined

Idaho Code § 63-3027

Director of Idaho. Code. 35.01.01.360

Illinois Combined Ill. Admin. Code tit. 86, §§ 100.5200, 5201
Kansas Combined Kan. Admin. Reg. § 92-12-77
Kentucky Combined

Ky. Rev. Stat. § 141.202

103 Ky. Admin. Reg. 16:400

Maine Combined 18-125 CMR Chap. 810, § .05
Maryland

Combined

(Information report)

MD Code, Taxation – General, § 10-804.1 (b)
Massachusetts Combined 830 Reg. 63.32B.2
Michigan Combined Mich. Comp. Laws § 206.691
Minnesota Combined Minn. R. 8019.0405
Montana Combined Mountain. Admin. R. 42.26.204
Nebraska Combined

Rev. Stat. § 77-2734.05

Admin. R. & Reg. Tit. 316, c. 24, § 053

New Hampshire Combined NH Rev. Stat. § 77-A: 6, IV
New Jersey Combined State of New Jersey. § 54: 10A-4.8
New Mexico Combined Administrator of the NM. Codification 3.4.10.14
New York Combined New York Tax Law § 210-C
North Dakota Combined ND Admin. Code 81-03-05.3-02
Oregon Consolidated for Unitary Group Or. Rev. Stat. § 317.710 (5)
Oregon (CAT) Combined Or. Rev. Stat. § 317A.106
Rhode Island Combined 280 Code RI R. 20-25-10.6
Texas Combined

Texas Tax Code § 171.1014

34 Tex. Admin. Code § 3.590

Utah Combined Utah Code § 59-7-402
Vermont Combined 1-3 Vt. Code R. § 104: 1.5862 (d)
West Virginia Combined W. Go. Code R. 110-24-13a
Wisconsin Combined Wisconsin Admin. Tax Code §§ 2.62, .67

The references:

[1] 463 United States 159, 167 (1983)

[2] 17 cal. 2d 644 (1941), affd., 315 US 501 (1942)

[3] 445 United States 425, 439 (1980)

[4] See Container, 463 United States at 178-79. (The United States Supreme Court reiterated that the profitability factor test is necessary to find the unity; the flow of value and not the flow of goods is a necessary precondition to find the unity).

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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