When the taxpayer operates in one or more unitary states:

Question

Quizplus · Accepted Answer

When the taxpayer operates in one or more unitary states, apportionment factors are computed on a group-wide basis. This means that the taxpayer's activities in all states are taken into account for determining the tax liability. As a result, the tax incentive of creating nexus in a low-tax state is enhanced, as the taxpayer's overall tax liability is reduced. However, the tax benefit of a passive investment subsidiary holding company is neutralized because the subsidiary's income is also included in the apportionment formula. In such cases, the use of a water's edge election, which allows the taxpayer to exclude certain foreign and domestic affiliates from the apportionment formula, should be considered. Therefore, all of the above statements are true.

When the Taxpayer Operates in One or More Unitary States