2016 1061 Publication - Guidelines for Corporations …

1 2016 Guidelines forCorporations Filinga combined ReportRefer to Cal. Code Regs., tit. 18 section through for combined reporting definitions and procedures adopted under Section of the Revenue and Taxation Pub. 1061 2016 Page 2 FTB Pub. 1061 2016 Table of Contents Page Introduction ..3 Important Unitary Method ..4 The Use of a combined Return Distinguished From a combined report ..5S Corporations ..5 Corporations With Different Accounting Periods ..6 Part-Year for Intercompany Operating Losses (NOLs)..7 Capital Loss Limitation.

2 8 Alternative Minimum Tax (AMT) ..9 Election to File a Group When a Group Return Is Not Allowed ..11 Example of combined report Computations and Schedules ..11 Schedule 1 combined Income Subject to Apportionment ..13-15 Schedule 2 corporation C s Income Before and After Joining the combined Reporting Group ..16 Schedule 3 Computations to Place a corporation D s Income and Apportionment Factors on a Calendar Year 4 Calculation of combined Interest Offset ..18 Schedule 5 combined Apportionment Formula and Entity Income Assignment.

3 19-24 Schedule 6 combined Alternative Minimum Tax ..25-27 How to Get California Tax Information ..29 Automated Phone Booklets/Forms/Publications Other booklets/forms/publications prepared by the Franchise Tax Board include: Form 100, California corporation Tax Booklet Form 100W, California corporation Tax Booklet Water s-Edge Filers FTB Pub. 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity FTB Pub. 1050, Application and Interpretation of Public Law 86-272 FTB Pub. 1060, Guide for Corporations Starting Business in California FTB 4058, California Taxpayers Bill of Rights Information for Taxpayers Form FTB 4925, Application for Voluntary DisclosureThese booklets, forms, and publications may be obtained by: Downloading at Writing to: TAX FORMS REQUEST UNITFRANCHISE TAX BOARDPO BOX 307 RANCHO CORDOVA CA 95741-0307 Calling: from within the United States from outside the United StatesFTB Pub.

4 1061 2016 Page 32016 Guidelines for Corporations filing a combined ReportWhat s NewQualified Health Care Service Plan Income Gross income shall not include the qualified health care service plan income of a qualified health care service plan properly accrued with respect to enrollment or services that occur on or after July 1, 2016 , and on or before June 30, 2019. If the corporation has no income other than qualified health care service plan income that is excluded from gross income under Revenue and Taxation Code (R&TC) Section 24330 for the taxable year, then the corporation is exempt from the minimum franchise tax.

5 Additionally, apportioning Corporations with excluded qualified health care service plan income must follow the treatment of apportionment factors attributable to exempt income as explained in FTB Legal Ruling 2006-01 (April 28, 2006).IntroductionThis Publication sets forth the concepts of the unitary method of taxation and its application by the State of California to Corporations subject to either the franchise tax or income tax. It includes instructions for preparing a combined report , which a corporation is required to use in computing its California tax liability, when the corporate activities are part of a unitary business conducted by the corporation and its related Corporations .

6 A combined report is not equivalent to a consolidated return for federal Publication does not address water s-edge statutes under which corporate taxpayers may elect to exclude from the combined report some or all of the income and apportionment factors of certain foreign affiliates in the unitary group. For more information about the water s-edge election, get Form 100W corporation Tax Booklet-Water s-Edge Filers. Important InformationRegulations providing detailed rules regarding the general mechanics of combined reporting are in Cal.

7 Code Regs., tit. 18 section through Because those regulations reflect long-standing practices of the Franchise Tax Board (FTB), the regulations generally apply retroactively. For taxable years beginning on or after January 1, 2011:1. Gross receipts from sales of tangible personal property (except sales to the Government) which are shipped from an office, store, warehouse, factory, or other place of storage within California are assigned to California unless a member of the seller s combined reporting group is taxable in the state of destination.

8 If a member of the seller s combined reporting group is taxable in the state of destination, then the gross receipts from that sale are excluded from the California sales factor numerator. 2. The California sales of each corporation within a combined reporting group will be taken into account in the apportionment of business income to California, including amounts attributable to entities exempt from taxation in California such as entities protected by Public Law 86-272. For more information, see Cal. Code Regs., tit. 18 section (c)(7)(A)(1-3); Appeal of Finnigan corporation , Opn.

9 On Pet. For Reg., 88-SBE-022A (1/24/1990); and R&TC Section 25135(b).Regulations providing detailed rules relating to the treatment of intercompany transactions between members of a combined reporting group have been adopted (Cal. Code Regs., tit. 18 section ). In Farmer Bros. Co. v. Franchise Tax Board (2003) 108 Cal App 4th, 134 Cal Rptr. 2nd 390, the California Court of Appeal found R&TC Section 24402 to be unconstitutional. A statute that is held to be unconstitutional is invalid and unenforceable. Therefore, R&TC Section 24402 deduction is not earned by members of a combined reporting group may be assigned to an affiliated corporation that is a member of the same combined reporting group.

10 A credit assigned may only be claimed by the affiliated corporation against its tax liability. For more information, get form FTB 3544, Election to Assign Credit Within combined Reporting Group, form FTB 3544A, List of Assigned Credit Received and/or Claimed by Assignee, or go to and search for credit Operating Losses (NOLs) incurred in taxable years beginning on or after January 1, 2013, shall be carried back to each of the preceding two taxable years. The allowable NOL carryback percentage varies. For an NOL incurred in a taxable year beginning on or after January 1, 2015, the carryback amount shall be 100% of the corporation entitled to a carryback period pursuant to Internal Revenue Code (IRC) Section 172(b)(3) may elect to relinquish/waive the entire carryback period with respect to an NOL incurred in the 2016 taxable year.