CMI Exam with All Correct & 100% Verified Answers |
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Unitary Business Principle ✔Correct Answer-A. Functional Integration
B. Centralization of Management
C. Economies of Scale
The unitary business principle reflects that a state may not tax income or value earned outside
that state's borders and is derived from both the Due Process Clause and Commerce Clause of
the United States Constitution. Although states are permitted to tax an appropriate portion of a
corporation's interstate income or value, the unitary business principle prohibits states from
taxing income or value that cannot be attributed to a corporation's activities within the state.
Linchpin of Apportionability ✔Correct Answer-In both separate company states and combined
reporting states, the unitary business principle determines the tax base that is subject to
apportionment
Separate Company States ✔Correct Answer-the unitary business principle serves as a limit on
the activities of a corporation that are subject to tax
Combined Reporting States ✔Correct Answer-the unitary business principle defines which
corporations are included in determining the unitary group's income and the portion of that
income attributable to the combined reporting state
Mobil Oil Corporation v. Commissioner of Taxation of Vermont ✔Correct Answer-Mobil Oil
attempted to exclude dividends received from its foreign subsidiaries from its Vermont taxable
income. The Supreme Court held that "the linchpin of apportionability in the field of state
income taxation is the unitary business principle" Id. at 439. The Court determined that
Vermont could tax the
dividends because Mobil was unitary with its foreign subsidiaries based on the following factors:
(1) functional integration; (2) centralization of management and 3) economies of scale. The
Court in Mobil affirmed the unitary business principle, warning states that where "the business
activities of the dividend payor have nothing to do with the activities of the recipient in the
taxing State, Due Process
considerations might well preclude apportionability, because there could be no underlying
unitary business
Exxon Corp. v. Wisconsin Dep't of Revenue ✔Correct Answer-In determining its Wisconsin tax,
Exxon attempted to separate its exploration and refining operations from its marketing
operations. Exxon argued that it was nonunitary because: (1) Exxon could separately determine
the income from each operation; (2) each operation's sales to the other operations were at
competitive market prices; and (3) each operation had its own management. The Supreme
Court rejected those arguments and found that Exxon was a unitary business. The Court held
, that Exxon was "a highly integrated business which benefits from an umbrella of centralized
management and controlled interaction." Id. at 224. Exxon is significant in that the taxpayer was
attempting to demonstrate the existence of different unitary businesses within a single
corporate entity.
ASARCO, Inc. v. Idaho State Tax Comm'n ✔Correct Answer-The United States Supreme Court
held that ASARCO's 52.7%, 51.5%, 49% and 34% interests in subsidiaries did not constitute part
of a unitary business because ASARCO did not or could not exercise control over those
subsidiaries. Additionally, the Court concluded that all income from those subsidiaries should be
treated the same regardless of whether the income is derived from dividends, interest or capital
gains from the subsidiaries' stock.
Container Corp. of Am. v. Franchise Tax Bd ✔Correct Answer-Container's subsidiaries were
engaged in the same line of business as Container but independently made decisions regarding
their day-to-day operations. Additionally, there was not a significant flow of goods between
Container and its subsidiaries. Assistance to Subsidiaries, Standard of Review, Flow of Value Not
Flow of Goods
Allied-Signal, Inc. v. Director, Div. of Taxation, NJ ✔Correct Answer-The Court held that the
gain on the sale of the taxpayer's 20.6% interest in ASARCO could not be taxed by New Jersey
because the taxpayer was not unitary with ASARCO and because the stock purchase served an
investment function and not an operational function. Connection to Activity - Under the unitary
business principle, to impose a tax on an activity "there must be a connection to the activity
itself, rather than a connection only to the actor the State seeks to tax." The court has
recognized that "although a parent company [has] the potential to operate the subsidiaries as
integrated divisions of a single unitary business, that potential [is] not significant if the
subsidiaries in fact comprise discrete business operations
Dormant" Commerce Clause ✔Correct Answer-ultimately means that because Congress has
been given power over interstate commerce, states cannot discriminate against interstate
commerce nor can they unduly burden interstate commerce, even in the absence of federal
legislation regulating the activity.
Commerce Clause ✔Correct Answer-The clause states that the United States Congress shall
have power "to regulate Commerce with foreign Nations, and among the several States, and
with the Indian Tribes
Apportionment ✔Correct Answer-A method of dividing the net income/base (or more
precisely, the business income) between those states in which the taxpayer does business. An
imperfect proxy for dividing the business income. Container Corp. of America v. Franchise Tax
Board, 463 U.S. 159 (1983).
Property in Transit ✔Correct Answer-Destination. Property in transit is included in the
numerator of the state of destination. MTC Reg.IV.10
Latest Version |Already Graded A+
Unitary Business Principle ✔Correct Answer-A. Functional Integration
B. Centralization of Management
C. Economies of Scale
The unitary business principle reflects that a state may not tax income or value earned outside
that state's borders and is derived from both the Due Process Clause and Commerce Clause of
the United States Constitution. Although states are permitted to tax an appropriate portion of a
corporation's interstate income or value, the unitary business principle prohibits states from
taxing income or value that cannot be attributed to a corporation's activities within the state.
Linchpin of Apportionability ✔Correct Answer-In both separate company states and combined
reporting states, the unitary business principle determines the tax base that is subject to
apportionment
Separate Company States ✔Correct Answer-the unitary business principle serves as a limit on
the activities of a corporation that are subject to tax
Combined Reporting States ✔Correct Answer-the unitary business principle defines which
corporations are included in determining the unitary group's income and the portion of that
income attributable to the combined reporting state
Mobil Oil Corporation v. Commissioner of Taxation of Vermont ✔Correct Answer-Mobil Oil
attempted to exclude dividends received from its foreign subsidiaries from its Vermont taxable
income. The Supreme Court held that "the linchpin of apportionability in the field of state
income taxation is the unitary business principle" Id. at 439. The Court determined that
Vermont could tax the
dividends because Mobil was unitary with its foreign subsidiaries based on the following factors:
(1) functional integration; (2) centralization of management and 3) economies of scale. The
Court in Mobil affirmed the unitary business principle, warning states that where "the business
activities of the dividend payor have nothing to do with the activities of the recipient in the
taxing State, Due Process
considerations might well preclude apportionability, because there could be no underlying
unitary business
Exxon Corp. v. Wisconsin Dep't of Revenue ✔Correct Answer-In determining its Wisconsin tax,
Exxon attempted to separate its exploration and refining operations from its marketing
operations. Exxon argued that it was nonunitary because: (1) Exxon could separately determine
the income from each operation; (2) each operation's sales to the other operations were at
competitive market prices; and (3) each operation had its own management. The Supreme
Court rejected those arguments and found that Exxon was a unitary business. The Court held
, that Exxon was "a highly integrated business which benefits from an umbrella of centralized
management and controlled interaction." Id. at 224. Exxon is significant in that the taxpayer was
attempting to demonstrate the existence of different unitary businesses within a single
corporate entity.
ASARCO, Inc. v. Idaho State Tax Comm'n ✔Correct Answer-The United States Supreme Court
held that ASARCO's 52.7%, 51.5%, 49% and 34% interests in subsidiaries did not constitute part
of a unitary business because ASARCO did not or could not exercise control over those
subsidiaries. Additionally, the Court concluded that all income from those subsidiaries should be
treated the same regardless of whether the income is derived from dividends, interest or capital
gains from the subsidiaries' stock.
Container Corp. of Am. v. Franchise Tax Bd ✔Correct Answer-Container's subsidiaries were
engaged in the same line of business as Container but independently made decisions regarding
their day-to-day operations. Additionally, there was not a significant flow of goods between
Container and its subsidiaries. Assistance to Subsidiaries, Standard of Review, Flow of Value Not
Flow of Goods
Allied-Signal, Inc. v. Director, Div. of Taxation, NJ ✔Correct Answer-The Court held that the
gain on the sale of the taxpayer's 20.6% interest in ASARCO could not be taxed by New Jersey
because the taxpayer was not unitary with ASARCO and because the stock purchase served an
investment function and not an operational function. Connection to Activity - Under the unitary
business principle, to impose a tax on an activity "there must be a connection to the activity
itself, rather than a connection only to the actor the State seeks to tax." The court has
recognized that "although a parent company [has] the potential to operate the subsidiaries as
integrated divisions of a single unitary business, that potential [is] not significant if the
subsidiaries in fact comprise discrete business operations
Dormant" Commerce Clause ✔Correct Answer-ultimately means that because Congress has
been given power over interstate commerce, states cannot discriminate against interstate
commerce nor can they unduly burden interstate commerce, even in the absence of federal
legislation regulating the activity.
Commerce Clause ✔Correct Answer-The clause states that the United States Congress shall
have power "to regulate Commerce with foreign Nations, and among the several States, and
with the Indian Tribes
Apportionment ✔Correct Answer-A method of dividing the net income/base (or more
precisely, the business income) between those states in which the taxpayer does business. An
imperfect proxy for dividing the business income. Container Corp. of America v. Franchise Tax
Board, 463 U.S. 159 (1983).
Property in Transit ✔Correct Answer-Destination. Property in transit is included in the
numerator of the state of destination. MTC Reg.IV.10
