18-125 C.M.R. ch. 810 — Rule 810. Maine Unitary Business Taxable Income, Combined Reports and Tax Returns

18
DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES
125
BUREAU OF REVENUE SERVICES
INCOME/ESTATE TAX DIVISION
Chapter 810: MAINE UNITARY BUSINESS TAXABLE INCOME, COMBINED
REPORTS, AND TAX RETURNS
SUMMARY: This rule explains standards for determining Maine income tax for unitary businesses and
for filing combined reports under 36 M.R.S. § 5244 and related tax returns. A combined report is required
when an affiliated group of corporations is engaged in a unitary business and at least one member of the
group has Maine nexus. The combined report provides the basis for determining taxable income under the
laws of the United States and the net income of a unitary business.
Outline of Contents:
.01
Definitions
.02
Combined report
.03
Taxable income under the laws of the United States
.04
Differing year-end dates
.05
Unitary business returns
.06
Computation of tax
.07
Credits
.08
Allocation and use of combined net operating losses
.09
Carry in and carry out of net operating loss deductions
.10
Application date
.01
Definitions
A.
Affiliated group. "Affiliated group" means a group of 2 or more corporations in
which more than 50 percent of the voting stock of each member corporation is
directly or indirectly owned by a common owner or owners, either corporate or
non-corporate, or by one or more of the member corporations. 36 M.R.S. § 5102(1-
B).
B.
Apportionment factor. The apportionment factor is the sales factor. See 36 M.R.S.
§ 5211(8) and MRS Rule 801 (18-125 C.M.R., ch. 801.) In the case of an affiliated
group of corporations engaged in a unitary business and filing a single return, the
factor of the unitary business is the combined factor for all members of the group. In
the case of a member of an affiliated group of corporations engaged in a unitary
business that is filing a separate return, the numerator of the factor is the amount of
sales in Maine attributable directly to that member plus the applicable portion of Maine
sales attributable to non-nexus entities as determined under section .05(B) below and
the denominator is the sales everywhere of all members of the affiliated group of
corporations engaged in a unitary business.
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C.
Code. "Code" has the same meaning as in 36 M.R.S. § 111(1-A).
D.
Consistent with federal law or regulations. "Consistent with federal law or
regulations" or similar language used in this rule means making a relevant
determination in the same manner as under federal law or regulations. "Consistent
with federal law or regulations" or similar language used in relation to determining
net operating losses and the use of losses means determining in the same manner as
under federal law or regulations (a) whether a net operating loss deduction is
allowed, (b) the amount of deduction, or (c) the timing of the deduction. It does not
mean that a net operating loss for a unitary business - its occurrence, amount, or use
as a deduction - is based solely on whether the net operating loss or its use as a
deduction is included on a federal return filed by member corporations of the unitary
business.
E.
Nexus. A corporation has nexus with Maine when it has sufficient contact with
Maine to give the State jurisdiction to tax. For taxable years beginning on or after
January 1, 2022, a corporation has nexus with Maine if it exceeds the nexus
thresholds in 36 M.R.S. § 5200-B and does not qualify for the exemption under 36
M.R.S. § 5202-D. See MRS Rule 808 (18-125 C.M.R., ch. 808).
F.
Unitary business. "Unitary business" means a business activity that is characterized
by unity of ownership, functional integration, centralization of management and
economies of scale. 36 M.R.S. § 5102(10-A).
.02
Combined report
A taxable corporation that is a member of an affiliated group and that is engaged in a unitary
business with one or more other members of that affiliated group must file a combined
report. 36 M.R.S. § 5220(5). Maine utilizes a "water's edge" methodology for determining
the apportionable income base, meaning the income subject to apportionment is the income
required to be reported on the taxpayer's federal income tax return as modified by Maine
law. Therefore, all unitary members of the affiliated group, except those members not
required to file a federal return, must be listed on the combined report. Furthermore, the
income of a corporation not required to file a federal return may not be included on the
combined report. The apportionment factor must include only those amounts attributable to
the apportionable income base for that taxable year. Variation may be allowed when
petitioned for by the taxpayer or may be required by the Assessor. See 36 M.R.S. §
5211(17).
The combined report must indicate whether each corporation has nexus with Maine. The
combined report must also include, both in the aggregate and by corporation: the federal
taxable income, state modifications provided by 36 M.R.S. § 5200-A, sales in Maine and
everywhere, and the Maine net income of the unitary business. See 36 M.R.S. § 5244. The
corporations listed that are unitary members of the affiliated group and that have nexus with
Maine must file a Maine corporate income tax return or returns as provided in section .05
below. See 36 M.R.S. § 5220(5).
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.03
Taxable income under the laws of the United States
The taxable income under the laws of the United States, see 36 M.R.S. § 5102(8), of
the unitary business is determined in the following manner:
A.
The separate federal taxable income, as defined under federal consolidated
regulations for each member of the unitary business that is a member of a single
federal consolidated filing, must be adjusted for eliminations, deferrals, and other
modifications allowed under federal law and regulations. In the event that the
eliminations, deferrals, and other modifications are based on intercompany
transactions, such adjustments must be made only for transactions between
corporations included in the combined report. If a unitary group member did not
receive the full benefit of an allowable tax benefit (such as a charitable contribution
deduction) in the federal consolidated return because of the effect of income of
non-unitary members in the consolidated return, the unitary member may take the
adjustment that would have been allowed under federal law if only the unitary
members had filed the consolidated return.
B.
The federal taxable income (before special deductions and net operating loss
deductions) from the federal returns of unitary group members that are not members
of a federal consolidated group must be added to the income amounts obtained
pursuant to subsection A above.
C.
The taxable income referenced in subsections A and B above includes, for a
corporation with an interest in a passthrough entity (e.g., partnership, LLC, S
corporation), its distributive share of the entity income, loss, or deduction in
accordance with the Code and 36 M.R.S. § 5102(8). The character of any item
included in the distributive share is determined as if it were realized or incurred
directly by the corporation. The business of the passthrough entity is treated as the
business of the corporation. See MRS Rule 801 (18-125 C.M.R., ch. 801).
D.
The income computed in accordance with subsections A and B above must be
adjusted by certain intercompany transactions that result in gains/losses between
corporate members of the unitary business that have not already been used to adjust
income under subsection A above. Adjustments made under this subsection include,
but are not limited to, those for (a) dividends paid out of income subject to
apportionment under 36 M.R.S., chapter 821 by one unitary member to another
unitary member; (b) deferrals of gains/losses from intercompany sales of inventory;
and (c) deferrals of gains/losses from intercompany sales of fixed assets. These
intercompany transactions are deferred or eliminated for the purpose of reflecting
the income of the unitary business as a separate economic unit, similar to the
purpose that underlies the federal consolidated filing regulations. Intercompany
transactions must therefore be treated in a manner consistent with federal law and
regulations.
E.
The amount calculated by adjusting the aggregate income computed under
subsections A and B above in accordance with subsection D above constitutes the
taxable income of the unitary business under the laws of the United States before
special deductions (Code §§ 241 et seq.) and net operating loss deductions (Code §
172).
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F.
The amount of the special deductions for the members of the unitary business
must be aggregated and adjusted if necessary in a manner consistent with the
federal consolidated filing regulations.
G.
The federal taxable income computed in accordance with subsection E above must be
combined with the special deductions computed in accordance with subsection F above.
If the result of this computation is positive, available net operating loss deductions for
members of the unitary business may be applied against the income of the unitary
business. If the result of the computation is negative, it constitutes a net operating loss
for the unitary business and may be treated as the basis for a net operating loss
deduction that may be carried back or forward consistent with the Code and related
regulations and with the requirements of section .08 below.
.04
Differing year-end dates
If the taxable years of the members of the unitary business differ, the filing member's (see
section .05(A) below) taxable year must be used to determine the net income of the unitary
business.
If the precise amount of a unitary member's income can be readily determined from the
books for the months involved in the filing member's taxable year, those actual amounts are
to be used. In the absence of a precise determination, the income of a unitary member must
be converted to conform to the taxable year of the filing member on the basis of the number
of months falling within the applicable taxable year. For example, if the filing member
operates on a calendar year and a unitary member includible in a combined report operates
on a fiscal year ending on April 30, it is necessary to assign 8/12 of that member's income
from the current taxable year and 4/12 of the income from the preceding taxable year in
order to arrive at a full twelve months' income to be included in the combined report. This
method may be used only if the return can be timely filed after the filing member's taxable
year ends. As an alternative, the combined report may include the taxable income of a group
member for the taxable year ending within the taxable year of the filing member. Once one
of these methods is used for a group member, that member must continue to use that method
for succeeding years for as long as the corporation remains a member of the unitary
business.
After the combined taxable income of the unitary business is determined on the basis of
the filing member's taxable year, the apportionment factor must be computed on the basis
of the same taxable year.
.05
Unitary business returns
A.
Single return. Taxable corporations that are members of an affiliated group and
that are engaged in a unitary business may file a single return on which the
aggregate Maine income tax liability of all those corporations is reported. See 36
M.R.S. § 5220(5). The income of the unitary business is the net income, or Maine
net income, as the case may be, of the entire group. All members of the unitary
business with Maine nexus must be included in the single return.
The single return must be filed in the name and federal employer identification
number of the parent corporation if the parent is a member of the unitary business
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and has nexus with Maine. If there is no parent corporation, if the parent is not a
unitary group member, or if the parent does not have nexus with Maine, the
members of the unitary business must choose a Maine taxpayer member to file the
return. Once this filing member has been selected, it must remain the same in
subsequent years unless an ownership change occurs or the filing member no longer
has nexus with Maine. The return must be signed by a responsible officer of the
filing member as the agent of all unitary business members subject to Maine tax.
The Maine combined report of the unitary business must be attached to the Maine
corporate income tax return. Members of the unitary group are jointly and severally
liable for the tax of the members of the unitary group included in the combined
return.
B.
Separate return. If the single return option is not chosen, each unitary member that
has nexus with Maine must file a separate income tax return based on the combined
report. Each of the separate returns must list the combined federal taxable income
and the combined state modifications of the unitary business. Each separate member
determines its apportionment factor as follows. The numerator of the factor is the
amount of Maine sales attributable directly to that separate member plus the
applicable portion of Maine sales attributable to non-nexus entities described below.
The denominator of the factor is the amount of everywhere sales of the unitary
business.
The applicable portion of Maine sales attributable to non-nexus entities is
determined by applying a fraction to the total Maine sales of the non-nexus entities.
The fraction is equal to the separate Maine nexus member's Maine sales attributable
directly to that member (i.e., Maine sales before the addition of a portion of non-
nexus affiliate sales) divided by the total Maine sales attributable directly to all
nexus entities. A copy of the combined report must be attached to each of the
separate returns.
.06
Computation of tax
The gross tax is calculated by applying the Maine corporate income tax rates provided in 36
M.R.S. § 5200 against the net income of the unitary group. The gross tax is then adjusted by
multiplying that amount by the apportionment factor of the unitary group, the product of
which is the Maine tax liability for the nexus members of the unitary group.
If separate returns are filed, each filing member applies its separate apportionment
factor, as calculated under section .05(B) above, against the gross tax to determine the
member's Maine tax liability. If an alternate assignment of tax liability is elected by the
assignment of the preferential rates provided in 36 M.R.S. § 5200 to a specific member
or members, the associated reduction of tax liability must result in an equal increase of
tax liability to one or more other members of the unitary group. The sum of tax
liabilities of the separate filing members must equal the Maine tax liability that would
have been imposed on the nexus members of the unitary group if a single return was
filed.
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.07
Credits
A tax credit generated by a taxable corporation that is a member of an affiliated group engaged
in a unitary business may be applied only against the Maine income tax liability of that
corporation, and not against the Maine income tax liability of other members of the unitary
business, unless otherwise specifically permitted by law. If a tax credit is permitted by law to be
applied against the Maine income tax liability of two or more taxable corporations that are
members of the unitary business, the credit must be apportioned to each taxable corporation
using its separate apportionment factor, as calculated under section .05(B) above.
.08
Allocation and use of combined net operating losses
The allocation and/or use of losses is necessary for purposes of determining the availability
of net operating loss deductions to the unitary business in the event that a member leaves the
unitary business and/or a new member enters a unitary business. Net operating losses and the
use of net operating losses must be allocated to each member of the unitary business that
individually sustains a loss or utilizes a net operating loss. The allocation and use of the net
operating losses must be done in a manner consistent with federal law and regulations.
In a year in which the unitary business as a whole experiences a loss as determined in section
.03(G) above, the loss amount, and the use of the loss amount, allocated to individual
members of the unitary business is determined as follows:
A.
Allocation of losses. The loss allocated to those members that sustained a loss under
the calculations performed under section .03(G) above is determined on the basis of
each loss member's proportional contribution to the loss. The proportional factor is
applied against the total net loss of the unitary business as a whole to determine the
amount allocated to each member that experienced the loss.
B.
Allocation of use of losses. Net operating losses that make up the net operating loss
deduction must be applied in chronological order. Eligible losses arising in taxable
years ending on the same day and that are deductible without limitation in the
taxable year are applied on a pro rata basis.
.09
Carry in and carry out of net operating loss deductions
When a unitary business member with an allocated net operating loss carryover leaves the
unitary business, the allocated net operating loss amount remaining follows the former
member and is no longer available for use by the unitary business. The former member may
use the net operating loss carryover when filing a separate Maine income tax return if the
member does not become a member of another unitary business. If the former member
becomes a member of another unitary business, the member may use the net operating loss
in a manner consistent with the Code and related regulations and with the requirements of
this rule.
.10
Application date
Except where otherwise stated, this rule applies to tax years beginning on or after January 1,
2010.
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STATUTORY AUTHORITY: 36 M.R.S. § 112
EFFECTIVE DATE:
September 3, 2001
NON-SUBSTANTIVE CORRECTIONS:
March 17, 2004 - punctuation only in .10
AMENDED:
March 12, 2008 - filing 2008-99
September 12, 2010
April 20, 2022 - filing 2022-056
May 3, 2023 - filing 2023-065