Corporations filing on a water's-edge basis.

• Position: FTB NEWS

By electing water's-edge, a taxpayer elects into a system of taxation, which represents a peculiar blend of federal and state taxation concepts. California Revenue and Taxation Code Sec. 25110(a) provides the tests to determine if a particular corporation, or part thereof, is included in the water's-edge combined report. The water's-edge rules do not supersede:

* The unitary business concept (corporations must be engaged in a unitary business to file a combined report, whether they file on a worldwide or water's-edge basis).

* The allocation of income rules of the Uniform Division of Income for Tax Purposes Act (R&TC secs. 25120-25141). R&TC Sec. 25113 governs the manner of making a water's edge election as provided under R&TC Sec...