24
Tax Chapter Homework
14.
Tiffany Watt
AC 302 01
The unitary theory can increase the taxpayers income taxes as the apportionment
formula includes operations in locations where payrolls, property values, and selling
prices are higher than normally experienced (e.g., California and the U.K.).
a.
The unitary approach to state taxation attempts to neutralize taxpayer attempts to
place profitable operations in low- or no-tax jurisdictions. States have adopted
combined reporting as a means to discourage the use of passive investment
companies and to allow the taxation of income from intangible (e.g.,
trademarks assets and licenses).
Whether the unitary rules apply often turns on subjective assessments as to the
structure and operations of the business. This is unlike the application of the
controlled and affiliated group rules, discussed in text Chapter 17.
b.
When the business is found to be unitary, apportionment factors are computed on the
basis of the entire unitary entity, not just the subsidiary that is based in the taxing state. This
computational convention can work to the taxpayers benefit when high-taxed income now is
subjected to apportionment in a low-tax state.