Instructions For Form 41 - Idaho State Tax Commission

GENERAL INFORMATION

WATER’S EDGE ELECTION

If unity of ownership exists, the presence of any of the follow-

WATER’S EDGE ELECTION

ing factors creates a strong presumption that the activities of

The water’s edge election is only applicable to a unitary busi-

the taxpayer constitute a unitary business:

ness that has ownership in at least one foreign affiliate. The

business may elect to exclude the foreign affiliate from the com-

1 . All activities of the group are in the same general line or type

bined return and be taxed only on a percentage of any dividends

of business.

paid from the foreign affiliate.

2 . The activities of the group constitute different steps in a

vertically structured enterprise.

Only the income and apportionment factors of unitary corpora-

3 . The group is characterized by centralized management.

tions filing a federal income tax return or included in a federal

consolidated return are taken into account in determining Idaho

COMBINED REPORTING METHOD

taxable income. Corporations that file elections under Section

The combined report should not be confused with a federal con-

936 (Puerto Rico and Possession Tax Credit) of the Internal Rev-

solidated return. A combined report refers to the method used

enue Code are not taken into account in determining Idaho tax-

to compute the amount of business income to be reported to

able income.

Idaho by each member of a unitary group and not whether the

unitary group files a group return or several returns. This method

The water’s edge election must be made on the return as origi-

uses the apportionment factor to measure the economic activi-

nally filed. The election cannot be made on an amended return.

ties of the taxpayer in a state. Use of the combined report does

If a taxpayer wishes to change from the water’s edge method to

not disregard the separate corporate identities of the members

the worldwide filing method, permission must be requested from

of the unitary group.

the Idaho State Tax Commission.

The combined report may be reflected on one group return filed

The domestic disclosure spreadsheet must be filed within six

by the unitary group or on two or more returns, one for each

months after filing the Form 41. A unitary business may elect

member which has an Idaho filing requirement. If a group return

to forego the filing of the spreadsheet; however, the 85% ex-

is filed for the unitary group, the following information must be

clusion of dividends from foreign corporations and from Section

disclosed for each corporation which has an Idaho income tax

936 corporations must be reduced to 80%. The election to

filing requirement:

forego filing the spreadsheet is a yearly decision made by check-

ing the “Yes” box on line 10b, Form 41.

•

Idaho property, payroll, and sales amounts;

•

Idaho tax computation;

To request the Idaho Water’s Edge Election and Consent Form,

•

Idaho net operating loss calculation; and

and the domestic disclosure spreadsheet and instructions, call

•

Idaho tax credits and limitations.

(208) 334-7573 or send your request to: Income Tax Audit,

Idaho State Tax Commission, PO Box 36, Boise, ID 83722-

The combined reporting method is required if two or more cor-

0036.

porations are engaged in a unitary business, and more than 50%

of the voting stock is owned directly or indirectly by a common

An S corporation cannot make a water's edge election.

owner or owners. For more information, call (800) 972-7660 to

order the Guide to Combined Reporting.

MULTISTATE CORPORATE MEMBERS OF PARTNERSHIPS

If a corporation required to file an Idaho income tax return is a

A change from the use of the combined reporting method is

member of an operating partnership or joint venture, the corpo-

allowed only with prior consent from the Tax Commission. You

ration must apportion its share of the partnership’s business

must submit a written request at least 30 days prior to the due

income or loss along with all other net business income or loss

date of the return, not including extensions. Mail your request

of the corporation. The corporation’s share of the partnership’s

to: Income Tax Policy, Idaho State Tax Commission, PO Box

property, payroll and sales is determined in the same proportion

36, Boise, ID 83722-0036.

as the partnership’s income is distributed and must be included

in the corporation’s apportionment computation.

An S corporation cannot use the combined reporting method.

NET OPERA

NET OPERATING LOSSES

TING LOSSES

WORLDWIDE FILING

Each affiliated corporation included in a unitary group return must

If a taxpayer is part of a unitary group, the combined report

compute its own share of the combined net operating loss ap-

must include the income or loss and apportionment factor at-

portioned to Idaho and apply its loss to its apportioned income.

tributes of all unitary affiliates with more than 50% common

ownership. This includes corporations incorporated outside the

The provisions of Internal Revenue Code, Sections 381,

United States.

Carryovers In Certain Corporate Acquisitions, and 382, Limita-

tion On Net Operating Loss Carryforwards and Certain Built-In

Losses Following Ownership Changes, apply in computing the

Idaho net operating loss. The Section 382 loss limitation is

limited by the pre-merger loss corporation's Idaho apportionment

factor for the last tax year before the merger.

Instructions For Form 41 - Idaho State Tax Commission - 1998 Page 4

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