OAR 150-314-0351: Two or More Businesses of a Single Taxpayer

(1) A taxpayer may have more than one “trade or business”. In such cases, it is necessary to determine the apportionable income attributable to each separate trade or business. The income of each business is then apportioned by an apportionment formula that takes into consideration the factors, both in and out of state that 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 tobacco products. The third division produces and distributes motion pictures for theaters and television. There is no strong central management as each division operates independently of one another. Each division operates in this state as well as in other jurisdictions. In this case, it could be concluded that the taxpayer is engaged in three separate “trades or businesses.” Accordingly, the amount of apportionable income attributable to the taxpayer’s trade or business activities in this state is determined by applying an apportionment formula to the apportionable income of each business. (2) The determination of whether the activities of the taxpayer constitute a unitary business will turn on the facts of each case. In general, the activities of the taxpayer will be considered unitary if there is evidence to indicate that the divisions under consideration are integrated with, dependent upon, or contribute to each other and to the operations of the taxpayer as a whole (see OAR 150-314-0349). The following factors are considered to be good indicia of a unitary business; and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a unitary business: (a) Same type of business. A taxpayer is generally engaged in a unitary business when all of its activities are in the same general line. For example, a taxpayer operating a chain of retail grocery stores will most always be engaged in a unitary business. (b) Steps in a vertical process. A taxpayer is almost always engaged in a unitary business when its various divisions are engaged in different steps in a large vertically structured enterprise. For example, a taxpayer that 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 unitary 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. (c) Strong centralized management. A taxpayer which might otherwise be considered as engaged in more than one trade or business is properly considered a unitary 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 a unitary business when the central executive officers are 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.