The reporting requirements for corporations operating in multiple states vary
from state to state. Some states require separate return reporting while
others permit or require the taxpayer to report income on a combined
or consolidated basis. The type of filing mandated by a particular state
can effect both the taxable income calculation and apportionment percentage
in that state.
States
that employ separate entity reporting require each corporation
with sufficient nexus or business connections
with that state to file its own corporate income tax return.
Separate return filing is required even where the corporation
is included in a consolidated return for federal income tax
purpose. A return filed by a corporation in a separate return
state generally reflects the corporation's total income or
loss (after various state additions and subtractions) apportioned
to such state pursuant to that state’s apportionment
methodology.
Many states require or permit the filing of a consolidated
or combined state income tax return where there are two or
more affiliated corporations and each included corporations
has nexus in the state. A state may require consolidation
on either pre- or post-apportionment basis. If consolidation
is on a pre-apportionment basis, the incomes of the corporations
are combined and apportioned to the state using a single
formula that includes the factors of all the entities. Conversely,
if consolidation is on a post-apportionment basis, each corporation
computes income separately and apportions the income to the
state using a formula that includes only its factors. The
resulting state taxable income amounts for all the corporations
are then combined and reported together.
Some states require combined reporting where two or more
separate businesses comprise a unitary business. Factors
determining whether two businesses comprise a unitary business
include whether the business activities are in the same general
line, the existence of vertical integration and the existence
of strong centralized management. Under this method, the
combined taxable income of all members of a unitary group
of businesses is computed and then apportioned among the
group members based on apportionment percentages that reflect
the combined operations of the unitary group. A member of
the group that has nexus with a particular state then reports
its share of the total income of the unitary group apportioned
to such state on either a separate return or a combined report
reflecting the operations of all group members having nexus
with the state. The key difference between combined reporting
and consolidated reporting is that, under combined reporting,
the income apportioned to a state may include income of members
of the unitary group that do not have nexus with that state.
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information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
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timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
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© 2006 KPMG LLP, the
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a Swiss cooperative. All rights
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