This article provides a brief overview of how to file a California return for a unitary business, which is a commonly controlled group made up of two or more corporations.
Rules for filing a combined return
- If the group's income is derived wholly from within California, they can file separate returns or a combined return.
- California corporations that are unitary in nature can elect to file a combined return using the regular Form 100, or Form 100W, Water's-Edge Filers.
- The election is made on Schedule R-7, Election to File a Unitary Taxpayer's Group Return.
- The return must present the group's data by separate corporation, as well as the entire amount of unitary business income.
- The tax must show at least the minimum franchise tax for each member subject to it.
- S-Corporations can't generally be part of a combined group return.
- All members of the unitary group have to include CA in their state returns.
For further instructions, see FTB Pub.1061, Guidelines for Corporations Filing a Combined Report.
Forms for filing a combined return
- Form 100 California Corporation Franchise or Income Tax Return is the regular return for CA corporations.
- Form 100W California Corporation Franchise or Income Tax Return--Water's-Edge Filers can be filed by combined groups that meet the requirements.
- Schedule R-7 Election to File a Unitary Taxpayer's Group Return and List of Affiliated Corporations: Page 5 of Schedule R is used for multi-state apportionment.
- The key corporation is the first company listed. If this isn't the same as the parent company, change the list of companies in Screen 53, Consolidated Information (for states).
- The program completes page 2 of the R even if there aren't any other states involved, per state requirements. This triggers question M on page 2 to be marked yes. There's no way to override the response.
- To exclude a corporation from the group so it isn't assessed the minimum tax, make an entry in Screen 53.014 at the sub-level. Mark the box Corporation isn't taxable in California.
- Schedule P Alternative Minimum Tax and Credit Limitations: There are versions for both the 100 and 100W. A copy labeled "Combined Summary" across the top is added in a combined return.
- Additional forms that may be used are the same as other regular corporate returns.
NOL carryovers in a combined report (CA)
- Per changes by the CA Franchise Tax Board, California has suspended the NOL carryover deduction for taxable years 2020, 2021, and 2022.
- An NOL due to a disaster hasn't been suspended.
- To determine the NOL for each taxpayer in the combined group: adjust each taxpayer's share of the unitary business income or loss by any nonbusiness income or loss.
- In a subsequent year, when a member of the group has positive net income, the amount of NOL attributable to that particular taxpayer may be deducted. This is similar to an SRLY for the federal return when there's loss prior to the consolidation; however, the NOL in this case isn't based on prior history.
- The calculation of the allowed NOL carryover deduction at the consolidator level is based on the company's current share of the whole.
- The calculation could allow NOL carryovers from prior years to be taken against a consolidated return wherein subsidiaries either incurred a loss or exceeded the $500,000 income limitation imposed by California when it suspended NOL carryovers.
