(a) A
taxpayer may have more than one trade or business. In such cases, it is
necessary to determine the business income attributable to each separate trade
or business. The income of each business then is apportioned by an
apportionment formula which takes into consideration the instate and outstate
factors which relate to the trade or business the income of which is being
apportioned.
Example: The taxpayer is a conglomerate with
three operating divisions. One division is engaged in manufacturing aerospace
items for the federal government. Another division is engaged in growing coffee
products. The third division produces and distributes motion pictures for
theaters and television. Each division operates independently; there is no
strong central management. Each division operates in this State as well as in
other states. In this case, it is fair to conclude that the taxpayer is engaged
in three separate trades or businesses. Accordingly, the amount of business
income attributable to the taxpayer's trade or business activities in this
State is determined by applying an appropriate apportionment formula to the
business income of each separate trade or business.
(b) The determination of whether the
activities of the taxpayer constitute a single trade or business or more than
one trade or business will turn on the facts in each case. In general, the
activities of the taxpayer will be considered a single business if there is
evidence to indicate that the segments under consideration are integrated with,
dependent upon, or contribute to each other. The following factors are
considered to be good indicia of a single trade or business, and the presence
of any of these factors creates a strong presumption that the activities of the
taxpayer constitute a single trade or business:
(1) A taxpayer is generally engaged in a
single trade or business when all of its activities are in the same general
line. For example, a taxpayer which only operates a chain of retail grocery
stores will almost always be engaged in a single trade or business.
(2) A taxpayer is almost always engaged in a
single trade or business when its various divisions or segments are engaged in
different steps in a large, vertically structured enterprise. For example, a
taxpayer which explores for and mines copper ores; concentrates, smelts and
refines the copper ores; and fabricates the refined copper into consumer
products is engaged in a single trade or business, regardless of the fact that
the various steps in the process are operated substantially independently of
each other with only general supervision from the taxpayer's executive
offices.
(3) A taxpayer which might
otherwise be considered as engaged in more than one trade or business is
properly considered as engaged in one trade or business when there is a strong
central management, coupled with the existence of centralized departments for
such functions as financing, advertising, research, or purchasing. Thus, some
conglomerates may properly be considered as engaged in only one trade or
business when the central executive officers are normally involved in the
operations of the various divisions and there are centralized offices which
perform for the divisions the normal matters which a truly independent business
would perform for itself, such as accounting, personnel, insurance, legal,
purchasing, advertising, or financing.
