Question

Explain the basic differences between unitary and separate accounting states, and give examples.

Answer 1

In unitary states some group of companies are allowed to file combined or consolidated income tax return. For example, companies with similar ownership structure,functional integration, centralized management, economies of scale, and common departments providing services to the members of the other group can file combined income tax return if it satisfies the requirements as provided by the government. The unitary states will create specific requirements for filing income tax returns and sometimes it will be specified in statute.

On the other hand in separate accounting states the companies as specified above cannot file a combined or consolidated income tax return. They have to file separate income tax return for each entity.