Multistate Audit Technique Manual

CALIFORNIA FRANCHISE TAX BOARD Internal Procedures Manual Page 1 of 39Multistate Audit Technique Manual _______________________________________________________________________________ 3000 UNITY Revenue and Taxation Code §25101 provides that when the income of a taxpayer is attributable to sources both within and without California, the taxpayer is required to measure its franchise tax liability by its income attributable to sources within the state. The portion of the total income that is considered to be attributable to California is determined in accordance with unitary business principles. Under the unitary method, all of the activities comprising a single trade or business are viewed as a single unit, irrespective of whether those activities are conducted by divisions of a single corporation or by commonly owned or controlled corporations. The business income from all of the unitary business activities is combined into a single report (the combined report). An apportionment formula is then applied to the combined business income to determine the portion attributable to California. Although R&TC §25101 provides the general authority for use of the unitary method, the application of this concept has not been defined by statute. Instead, the law has evolved through a series of judicial decisions. This section of the manual will discuss the development and application of the unitary concept and some of the key court and SBE decisions ...