Arizona Unitary Business
In 1994, the Arizona standard for unitary business determinations was enunciated in State ex rel. Arizona Department of Revenue v. Talley Industries, Inc., 182 Ariz. 17, 893 P.2d 17 (App. 1994).
The question the Court confronted was whether the combined reporting of the overall net income of twenty-six members of the Talley group was required to clearly reflect taxable income earned under A.R.S. 43-947(A). Id. at 19, 21, 893 P.2d at 19, 21.
(1) manufactured and supplied commercial and high technology products;
(2) made time-keeping instruments;
(3) imported men's and women's apparel;
(4) bought and sold property. Id. at 19, 893 P.2d at 19.
Talley argued that its various subsidiaries constituted a unitary business based on their functional integration. Id. at 22, 893 P.2d at 22.
In Talley, it was the taxpayer that argued for combined reporting, seeking to utilize losses from its subsidiaries to reduce its taxable income. Id. at 17-18, 893 P.2d at 17-18.
In the case before us, it is just the opposite.
It is the Department that seeks a finding of a unitary business in order to attribute gains from the Subsidiaries to Taxpayer to increase the amount of income the Department can tax.
In Talley, we spent considerable time discussing the various approaches to determining whether a business is unitary. Id. at 21-25, 893 P.2d at 21-25.
After describing "a continuum of alternative formulae" beginning with a broad test in California and a narrow test in Louisiana and Mississippi, id. at 23, 893 P.2d at 23, the Court found that "a rational compromise between the broad California three-unities test and the unduly restrictive approach at the other end of the spectrum" was an "intermediate approach" adopted in Pennsylvania and recommended by the Hellerstein treatise. Id. at 23, 893 P.2d at 23.