18-125 C.M.R. ch. 810, § .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 §§241et seq.) and net operating loss deductions (Code §172) .

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.

Notes

18-125 C.M.R. ch. 810, § .03