20 NYCRR § 6-2.3

Unitary business requirement

Official textus-ny/regstax.ny.gov12 subsections

# (a)

General. For purposes of this Subchapter, the term “unitary business” shall be construed to the broadest extent permitted under the U.S. Constitution as interpreted by the U.S. Supreme Court, the courts of this state and the New York State Tax Appeals Tribunal.

# (b)

Attributes of a unitary business.

# (1)

A unitary business is characterized by a flow of value as evidenced by functional integration, centralized management and economies of scale.
(i) Functional integration is characterized by transfers between, or pooling among, business activities that significantly affect the operation of the business activities. Functional integration includes, but is not limited to, transfers or pooling with respect to the business’s products or services, technical information, marketing information, distribution systems, purchasing and intangibles. The use of market-based or arm’s length pricing for such transactions does not negate the presence of functional integration.
(ii) Centralized management exists when directors, officers, and/or other management employees jointly participate in the management decisions that affect the respective business activities and that may also operate to the benefit of the entire economic enterprise. Centralized management may exist even when day-to-day management responsibility and accountability have been decentralized, so long as the management has an operational role with respect to the business activities, such as participation in overall operational strategy for the business.
(iii) Economies of scale refers to a relationship among and between business activities resulting in a significant decrease in the average per unit cost of operational or administrative functions due to the increase in operational size. Economies of scale may exist from the inherent cost savings that arise from the presence of functional integration or centralized management.

# (2)

Functional integration, centralized management and economies of scale should be analyzed in conjunction with one another for their cumulative effect. The determination of a unitary business depends on all of the facts and circumstances of each case.

# (c)

Presumptions. Without limiting the scope of a unitary business, a unitary business will be presumed in the following factual scenarios. The corporation or the commissioner may overcome the presumption that the corporations in question are engaged in a unitary business by the presentation of clear and convincing evidence. If the activities of the corporations do not give rise to one of the presumptions set forth below, the presence of a unitary business will be determined based on all of the facts and circumstances of the case without the application of a presumption in favor of or against a finding of a unitary business.

# (1)

Horizontal integration. Corporations that satisfy the capital stock requirement are presumed to be engaged in a unitary business when their primary activities are in the same general line of business.

# (2)

Vertical integration. Corporations that satisfy the capital stock requirement are presumed to be engaged in a unitary business when the corporations are engaged in different steps in a vertically structured enterprise.

# (3)

Strong centralized management. Corporations that satisfy the capital stock requirement, and that might otherwise be considered as engaged in more than one unitary business, are presumed to be engaged in one unitary business where there is strong central management coupled with the existence of centralized departments or affiliates for such functions as financing, advertising, research and development, or purchasing.

# (4)

Newly-formed corporations. A newly-formed corporation is presumed to be engaged in a unitary business with its forming corporation or corporations in the taxable year of the newly-formed corporation that includes the date the corporations satisfy the capital stock requirement and starting from that date.

# (5)

Newly-acquired corporations. A newly-acquired corporation is presumed to be engaged in a unitary business with its acquiring corporation in the first taxable year that the corporations satisfy the capital stock requirement and starting in that year, if the corporations are engaged in a relationship described in paragraph 1, 2 or 3 of this subdivision.

# (6)

Holding companies. If a holding company, including a passive holding company, financial holding company, or a bank holding company, and one or more operating companies together satisfy the capital stock requirement, the holding company is presumed to be engaged in a unitary business with the operating company or companies.

# (d)

Examples.
The following examples are intended to illustrate the presumptions set forth above. For purposes of the illustrations, the corporations referred to in the examples satisfy the capital stock requirement.
Example 1: Corporations A and B sell natural and organic foods at their retail stores located throughout the United States. Corporation C sells the same types of foods at its retail stores located in Canada. Corporations A, B and C are presumed to be engaged in a unitary business.
Example 2: Corporation A is engaged in the exploration of oil. Corporation B extracts the oil found by Corporation A. Corporation C processes the oil extracted by Corporation B. Corporation D sells the oil processed by Corporation
C. Corporations A, B, C and D are presumed to be engaged in a unitary business.
Example 3: Corporations A, B and C manufacture and sell children’s apparel to customers located throughout the United States. Corporations D and E operate a chain of restaurants located in New York and Florida.
Corporation F provides centralized purchasing, advertising and finance services to Corporations A, B, C, D and E. The executive officers of Corporation F are also actively engaged in the operations of Corporations A, B,C, D and E. Corporations A, B, C, D, E and F are presumed to be engaged in one unitary business.
Example 4: Corporation A contributes all of its intellectual property to Corporation B for 100% of Corporation B’s capital stock. Corporations A and B are presumed to be engaged in a unitary business in the first taxable year in which they satisfy the capital stock requirement.
Example 5: Corporation A acquires 51% of the capital stock of Corporation B.
Corporation B distributes the products manufactured by Corporation A such that Corporations A and B are part of a vertically structured business apart from satisfying the capital stock requirement. Corporations A and B are presumed to be engaged in a unitary business in the first taxable year that includes the acquisition.

Source: official source document (DTF adopted rule text, December 2023 corporate reform)

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