11­24­3a(10)(C) (specific terms defined for corporation net income tax purposes). As such, New Subsidiary is prohibited, under W. Va. Code § 11-23-5a(c), from joining in the filing of a 1993 West Virginia consolidated business franchise tax return and, under W. Va. Code § 11-24-7b(c), from joining in the filing of a 1993 West Virginia consolidated corporation net income tax return. As a further consequence, the other members of this affiliated group are precluded from continuing to file West Virginia consolidated returns because W. Va. Code § 11-24-13a requires that all member of an affiliated group, as defined for federal income tax purposes, be included in a West Virginia consolidated corporation net income tax return, and the method of filing for corporation net income tax purposes determines the method of filing for business franchise tax purpose. Parent Corporation represents that: (1) it and its wholly-owned subsidiaries, with the exception of New Subsidiary, conduct a unitary business; (2) each such member corporation contributes to or is dependent upon other affiliated members; (3) significant intercompany sales and other transactions routinely occur; (4) with the exception of New Subsidiary, member corporations are commonly owned and managed, and are engaged in the same general, vertically integrated line of business of exploring for, producing, marketing, and transporting oil and gas; and (5) in contrast, New Subsidiary, unlike the other members of this affiliated group, is not engaged in the business of exploring for, producing, marketing, and transporting oil and gas. Parent Corporation submits that New Subsidiary is not part of a functionally integrated group of affiliated companies as defined by 110 C.S.R. 24, § 7.24.4.2.f. Parent Corporation and its wholly-owned subsidiaries, except for New Subsidiary, filed with the Tax Commissioner a timely request for permission to file a combined business franchise tax return and a combined corporation net income tax return for their taxable years ending on or after December 31, 1993. The issue presented for ruling is whether or not Parent Corporation and its wholly­owned subsidiaries, except for New Subsidiary, may file a West Virginia combined business franchise tax return, and a West Virginia combined corporation net income tax return for such taxable years.DISCUSSION Our analysis begins with the West Virginia corporation net income tax (WVCNIT) because the method of filing for purposes of that tax controls the method of filing for West Virginia business franchise tax (WVBFT) purposes. The starting point for determining WVCNIT liability is the corporation's federal taxable income for the taxable year, W. Va. Code § 11-24-6(a). Federal taxable income is then adjusted as provided in W. Va. Code § 11-24-6(b)-(f). A corporation which is taxable in West Virginia and in one or more other states is required to allocate and apportion its adjusted federal taxable income as provided in W. Va. Code § 11-24-7, unless it is a motor carrier to which the rules of W. Va. Code § 11-24-7a(b) apply, or a financial organization to which the rules of W. Va. Code § 11-24-7b apply. The general rule is that each corporation subject to WVCNIT files an annual return and calculates its tax liability based upon its West Virginia taxable income. Unless one or more members of an affiliated group of corporations, as defined for federal income tax purposes, is a financial organization, as defined in W. Va. Code § 11-24-3a(10), the group may elect, under W. Va. Code § 11-24-13a(a), to file a consolidated WVCNIT return in lieu of separate returns being filed by those members of the group that are subject to the taxing jurisdiction of this State. All members of an affiliated group which would be included in a federal consolidated income tax return must be included in the consolidated WVCNIT return, whether or not such corporation is, itself, doing business in this State. The affiliated group is deemed to be the taxpayer. W. Va. Code § 11-24-13a(e). If a corporation believes that these methods of filing, or the statutory rules for allocation and apportionment of income, do not fairly represent the extent of the taxpayer's business activities in this State, the corporation may petition for permission to file on some other basis which effectuates an equitable allocation of apportionment of taxpayer's income. This includes, but is not limited to, the filing of a combined return by those members of a group of corporations which engage in a unitary business. See W. Va. Code § 11-24-7(h). Legislative rules for the WVCNIT provide guidance on when two or more corporations are engaged in a unitary business. 110 C.F.R. 24, § 7.24 (other methods of allocation and apportionment). These rules provide that "[a] unitary business exists when the operations of the business segments of a corporation or group of commonly owned and controlled corporations contribute to or depend on each other in such a way as to result in functional integration between such segments." 110 C.S.R 24, § 7.24.4.2.d. "Functional integration refers to transfers between or pooling of business segments of such items as products or services, technical information, marketing information, distribution systems, purchasing and intangibles (such as patents, copyrights, formulas, processes, trade secrets, and the like) in a manner which substantially affects the segments' business operations related to such activities as development, manufacture, production, extraction, distribution of sale of its products or services. Id. "The determination of whether or not the operations of business segments are functionally integrated will turn on the facts and circumstances of the case. Several factors may evidence that the operations of business segments are functionally integrated." 110 C.S.R. 24, § 7.24.4.2.e. A non-exclusive list of such factors is found in paragraph 7.24.4.2.f of these rules. Evidence of a unitary business is presumptively shown by the presence of the following: "7.24.4.2.g.1 Same general line of business: There is a strong presumption that a corporation or a commonly owned and controlled group of corporations is engaged in a unitary business when its activities are in the same general line. For example, a chain of retail grocery stores will almost always be engaged in a unitary business. "7.24.4.2.g.2 Steps in a vertical process: A corporation or a commonly owned or controlled group of corporations is almost always engaged in a unitary business when its various divisions of segments are engaged in different steps in a vertically structured enterprise. For example, a corporation which explores for and mines copper ores; concentrates, smelts and refines the copper ores; fabricates the refined copper into consumer products and distributes such products (whether by intercompany fee or purchase, or without charge) is engaged in a unitary business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the corporation's executive offices. On the other hand, "[b]usiness segments which are neither in the same general line nor steps in a vertical process are presumptively engaged in separate businesses, absent a determination that the respective segments are functionally integrated." 110 C.S.R. 24, §

7.24.4.2.h. Based upon information submitted with the request for ruling, we are of the opinion that Parent Corporation and its wholly-owned subsidiaries, except for New Subsidiary, are engaged in a unitary business. Additionally, since Parent Corporation and its wholly-owned subsidiaries, to the extent they were in existence before January 1, 1993, elected to file consolidated WVCNIT returns in prior years and, since due to creation of a subsidiary which is a financial organization, as defined in W. Va. Code § 11­24-3a(10), Parent Corporation and those subsidiaries are now precluded from filing a consolidated return, we believe it is appropriate to grant this request to file a West Virginia combined corporate income tax return and a combined business franchise tax return for taxable years ending on or after December 31, 1993.COMBINED RETURNS Combined West Virginia returns are prepared using the standard West Virginia annual return forms for the business franchise tax (WV/BFT-120) and the corporation net income tax (WV/BFT-112) supplemented by the following documents and schedules: (1) A copy of pages 1 through 4 of the federal consolidated income tax return filed for the taxable year by the affiliated group, (2) A consolidated balance sheet showing the inclusions and eliminations, whether they be positive or negative, for each member of the affiliated group included in the federal consolidated return, (3) A consolidated profit and loss statement, in columnar form, disclosing for each corporation included in the federal consolidated return its statement of profit and loss, (4) A schedule listing: (A) members of the affiliated group included in the West Virginia combined return, (B) members of the affiliated group not included in the combined return and whether or not such members will be filing separate returns, (5) A schedule, in columnar form, disclosing the profit and loss statement for each corporation included in the combined return and the various adjustments necessary to convert each corporation's pro forma federal taxable income to West Virginia taxable income, and (6) A combined balance sheet showing the inclusions and eliminations, whether they be positive or negative, and the beginning and ending balances for each corporation included in the combined return. RULINGS After due consideration of the facts presented and application of current law, we reach the following conclusion: 1. A single West Virginia combined business franchise tax return and a single West Virginia combined corporation net income tax return may be filed by Parent Corporation and its wholly-owned subsidiaries, except New Subsidiary, for taxable years ending on or after December 31, 1993. 2. Permission to file combined returns is valid for a period of 5 consecutive taxable years provided there is no material change of fact or law which materially affects the fairness and reasonableness of this method of filing. See W. Va. Code § 11-24-7a(a). Assuming no such change, combined returns must be filed in subsequent years during this period unless the Tax Commissioner consents to a different method of filing. During the fifth taxable year, Parent Corporation a request for permission to continue filing combined returns should be submitted. 3. If New Subsidiary, a financial organization, has taxable nexus with this State for any taxable year ending on or after December 31, 1993, it must file a WVBFT return and a WVCNIT return, on a separate company basis and adhere to the rules of W. Va. Code §§ 11-23-5a and 11­24­7b. The conclusions reached in this advisory are based on the facts recited herein, review of previously filed consolidated returns, and application of current statutes and administrative regulations. If the material facts change or are different, or if there is a material change in the applicable law, whether such change is legislative, judicial or administrative, a different result may apply. The Tax Commissioner is required to publish this technical assistance advisory after deleting or modifying the facts so as not to disclose the name or identity of the taxpayer. This advisory will be published as Technical Assistance Advisory 94-005. If you have any question about the conclusions reached in this letter, please contact me at your convenience.Issued: March 30, 1994 James H. Paige III Secretary/Tax Commissioner