California CPA for Unitary Determinations

When corporate activities are part of a group or separate parts of one entity, the group can calculate their taxable income on a combined basis. This is known as the unitary method and it entails combining all of the activities from a unitary business into one report, which is used to compute the business’s tax liability.

Businesses in California that are interested in filing unitary determinations to file their taxes can use the services of the California unitary determination CPAs from Cook CPA Group. Contact them to learn more about the ways that your business entity can calculate taxable income on a unitary basis.

Unitary Determinations in California

Corporations in California are required to prepare a combined report if their corporate activities are part of a unitary business. Essentially, the separate parts of a business entity can combine their taxable income for the purposes of paying their franchise or income tax—a company’s multistate business activities are treated as a single entity instead of separate activities that take place in different states. To be able to file a combined report, the parts of the business entity must be interdependent, integrated, and interrelated through their business activities, which provides synergy and mutual benefit in a way that produces a share or exchange of value between them.

When tax professionals advise business entities on their unitary determinations, they take certain factors into account. They help businesses determine the degree of integration and centralized management between the companies and figure out whether the members of their business group pass the tests for determining unity. A unitary analysis can help businesses realize their need for unitary filings and identify the ways that the unitary determination can affect their other tax planning endeavors.

The Unitary Business Principle

Businesses that make their income by operating both within the state of California and outside of California must measure their tax liability through the income that was made from sources within California. To determine the amount of income that was made within the state of California, the unitary business principle is used. The groups of business activities that are combined into one report are known as a unitary business group and can be comprised of either vertically or horizontally integrated businesses.

According to the unitary business principle, all of the elements that comprise one business are taken into account as one entity or unit. The income from all of the parts of the entity are combined into one report. When businesses file reports according to the unitary business principle, they are computing their combined income based on a formula, rather than accounting for each of the separate locations of their components based on geography. The use of the unitary business principle is important because it allows for reporting to be straightforward with regard to the tax that is attributable to each state.

Tests for Determining Unity for California Businesses

Early court cases about unitary businesses determined that a unitary business is a business that has unity of ownership, unity of operation (which is evidenced by central divisions for functions including purchasing, advertising, management, and accounting), and unity of use in the system of operations and centralized executive force. Another early court case about unitary businesses created what is known as the “contribution/dependency test,” which holds that if the operation of a portion of the business is done within one state and depends on or contributes to the operation of the business outside of the state, it is unitary.

Whether or not a business is unitary depends on the facts in each case. Generally, a business’s activities are considered to be a single business if they can provide evidence that indicates that the segments of the business are integrated, dependent on each other, or contributory to each other and the operations of the taxpaying business as a whole. However, there are still some factors that a group of business activities may exhibit that indicate that they constitute a single trade or business:

1. They are the same type of business, or when all of the taxpayer’s activities are of the same type
2. The activities are steps in a vertical process
3. The activities are overseen by a strong centralized management

Filing a Combined Report

When two or more corporations are considered to be a unitary business within California, they must use the combined reporting approach to figure out their combined income. Corporations that have chosen to be treated as an “S corporation” cannot be included in a combined report.

A combined report is not a return; instead, it is simply the name given to the calculations that are used to apportion income for a multi-entity unitary business. The entire amount of income for all of the corporations in the unitary group, including those that don’t have property or sales in California, are included in a combined report. There is no designated form for a combined report. Instead, it is completed on a form that is attached to Form 100 or Form 100W. Since a combined report includes an extensive amount of information, unitary groups are encouraged to use the help of an experienced unitary determination accountant to file their combined reports.

Work with Our Unitary Determination Accountants in California

The California unitary determination CPAs from Cook CPA Group are available to assist California businesses with their combined reporting. Contact them soon to learn more about their unitary determination services and other ways that they can help businesses with their tax planning and preparation.