Finding the Unitariness in the Unitary Business Concept: The New Multistate Income Tax on Enterprise Unity Predictor

Dec 24, 2021


As the Supreme Court of the United States (the “U.S. Supreme Court” or the “Court”) pointed out in Container Corp. of Am. v. Franchise Tax Bd., “the unitary business concept is not … so to speak, unitary: there are variations on the theme, and any number of them are logically consistent with the underlying principles motivating the approach.” While states, at least a majority of them, nowadays construe the scope of a unitary business to the broadest extent permitted under the Constitution of the United States, the U.S. Supreme Court has not set up a uniform legal standard for what qualifies as a “unitary business.”

In Butler Brothers v. McColgan, the California and United States Supreme Courts employed the “three unities test,” which looked to unity of ownership, unity of operation, and unity of use. The Supreme Court of the United States (the “U.S. Supreme Court” or the “Court”)  in Mobil Oil Corp. v. Commissioner of Taxes, announced that a unitary business must be characterized by significant flows of value evidenced by factors such as functional integration, centralization of management, and economies of scale. These factors provide evidence of whether the business activities operate as an integrated whole or exhibit substantial mutual interdependence.

Unitary Business Concept in the Context of Unitary Combined Reporting

Currently, more than 30 states require mandatory unitary combined reporting (“combined reporting”) for taxing income purposes. The common theme of the different states’ combined reporting regimes tries to capture the concept of unitary business, at least for the enterprise unity, as a single economic enterprise that is made up of a group of business entities under common ownership that are sufficiently interdependent, integrated, and/or interrelated through their activities so as to provide a synergy and mutual benefit that produces a flow of value among them.

With few exceptions, states that require combined reporting (“combined states”) share similar common ownership definitions for combined reporting. However, whereas a majority of the combined states through statutory and decisional law rely on the “Hallmarks” test identified by the Court in Mobil to identify unitary business, the other states still focus on the unity of operations and use in Butler Bros.

Regardless of which test is used to determine unitary business, all the combined states indicate that the unitary business for combined reporting purposes must 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 unitary business to as many as more than a dozen factors for finding unitary business depending on the taxing combined state. Nevertheless, it is a common theme among the combined states that the facts or factors identified indicating the existence or non-existence of any one factor must be considered collectively in determining their overall impact as to whether there is a unitary business.

Multistate Income Tax: Unitary Business by Blue J

Blue J’s Unitary Business predictor is specifically designed to predict whether a group of affiliated business entities conducts a unitary business within and without a state, based on your fact pattern. Blue J’s predictive module captures the unitariness of the unitary business concept across different combined states (with the exception of Arizona, which is treated with a different analysis) by figuring out the appropriate weight of each of 19 factors commonly identified in the decisional law to the finding of unitary business.

Additionally, the Unitary Business Decision Finder allows practitioners to browse cases and administrative decisions dealing with the unitary business analysis on enterprise unity and filter by states, outcomes and factors.

Appendix States Currently Requiring for Mandatory Combined Combined Reporting

State/JurisdictionCorporate Tax Filing RequirementsAuthority
AlaskaCombinedAlaska Stat. § 43.20.031(i)
ArizonaCombinedAriz. Admin. Code R15-2D-401
CaliforniaCombinedCal. Code Regs. tit. 18, § 25106.5
Cal. Rev. & Tax. Code § 25105
ColoradoCombinedColo. Rev. Stat. § 39-22-303(12)
1 Colo. Code Regs. § 201-2:39-22-303.11(a)
ConnecticutCombinedConn. Gen. Stat. §§ 12-213, 218e, 218f, 223a
Washington D.C.CombinedD.C. Code § 47-1805.02a
HawaiiCombinedHaw. Code R. 18-235-22-03
IdahoCombinedIdaho Code § 63-3027
Idaho Admin. Code r.
IllinoisCombinedIll. Admin. Code tit. 86, §§ 100.5200, 5201
KansasCombinedKan. Admin. Regs. § 92-12-77
KentuckyCombinedKy. Rev. Stat. § 141.202
103 Ky. Admin. Regs. 16:400
MaineCombined18-125 CMR Ch. 810, § .05
(Information Report)
MD Code, Tax – General, § 10-804.1(b)
MassachusettsCombined830 Mass. Code Regs. 63.32B.2
MichiganCombinedMich. Comp. Laws § 206.691
MinnesotaCombinedMinn. R. 8019.0405
MontanaCombinedMont. Admin. R. 42.26.204
NebraskaCombinedNeb. Rev. Stat. § 77-2734.05
Neb. Admin. R. & Regs. Tit. 316, Ch. 24, § 053
New HampshireCombinedN.H. Rev. Stat. § 77-A:6, IV
New JerseyCombinedN.J. Stat. § 54:10A-4.8
New MexicoCombinedN.M. Admin. Code
New YorkCombinedN.Y. Tax Law § 210-C
North DakotaCombinedN.D. Admin. Code 81-03-05.3-02
OregonConsolidated for Unitary GroupOr. Rev. Stat. § 317.710(5)
Oregon (CAT)CombinedOr. Rev. Stat. § 317A.106
Rhode IslandCombined280 R.I. Code R. 20-25-10.6
TexasCombinedTex. Tax Code § 171.1014
34 Tex. Admin. Code § 3.590
UtahCombinedUtah Code § 59-7-402
VermontCombined1-3 Vt. Code R. § 104:1.5862(d)
West VirginiaCombinedW. Va. Code R. 110-24-13a
WisconsinCombinedWis. Admin. Code Tax §§ 2.62, .67


[1] 463 US 159, 167 (1983)

[2] 17 Cal. 2d 644 (1941), affd., 315 U.S. 501 (1942)

[3] 445 U.S. 425, 439 (1980)

[4] See Container, 463 U.S. at 178-79. (the U.S. Supreme Court reiterated that the factors of profitability test are necessary to finding unity; flow of value and not the flow of goods is a necessary prerequisite to finding unity).