Tax News

CCH (cch.taxgroup.com) reports:

A manufacturing corporation's gain from the sale of its stock in a subsidiary that distributed the corporation's products constituted apportionable business income for Idaho corporate income tax purposes. Idaho tax law established a strong presumption that income from stock or other securities was business income, and the corporation failed to rebut that presumption.
Despite arguments to the contrary, the corporation was found to be in a unitary relationship with the subsidiary under the "contribution-dependency" test. The operations of the two corporations were dependent upon, or contributed to the operation of, each other, making their operations unitary.
Furthermore, since the corporation's investment in, and sale of, the subsidiary served an operational function, the income derived from the transactions was part of the corporation's unitary business, and thus subject to apportionment.
The corporation's stock gain was also characterized as business income because the sale of the subsidiary's stock satisfied the "functional" test used to determine business income. Under this functional test, business income includes income from the acquisition, management, or disposition of tangible and intangible property when such acquisition, management, or disposition constituted integral or necessary parts of the taxpayer's trade or business operations. There was no requirement under the functional test that the income must arise from transactions and activities in the regular course of the taxpayer's trade or business. The key determination was whether the property acquired, managed, or disposed was directly connected with the taxpayer's business operations. A business connection was found to exist in this case.
Finally, the corporation argued that including the subsidiary in a combined group distorted the amount of income apportioned to Idaho. However, the corporation did not identify how the standard apportionment formula failed to reflect the extent of the corporation's business activity in the state. The corporation failed to sufficiently demonstrate that there was reason to depart from the standard apportionment formula and to utilize an alternative apportionment scheme.
Decision No. 19109 , Idaho State Tax Commission, February 14, 2007, received June 18, 2007, ¶400-542
Other References:
Explanations at ¶11-510