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California’s combined reporting system upheld


A California court of appeal held that California’s system that allows unitary intrastate businesses to choose between separate reporting and combined reporting while mandating that interstate unitary businesses use combined reporting was constitutional. (Harley-Davidson, Inc. v. FTB (August 22, 2018) Cal. Ct. of App., Fourth Dist., Case No. D071669) Although California’s system treats interstate businesses differently, the state has a legitimate reason for doing so. Combined reporting ensures that all business income from interstate businesses is accurately accounted for and prevents manipulation and hiding of taxable income. This issue does not arise for unitary intrastate businesses because all their income is subject to California tax.