No. 85,855
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
In the Matter of the Appeal of
LEE APPAREL COMPANY, INC.;
TR0UTMAN INDUSTRIES, INC.; BLUE BELL, INC.;
From an Order of the Division of Taxation
on Assessment of Corporate Income Tax.
SYLLABUS BY THE COURT
1. The burden is upon the taxpayer to show that its multistate business is separate and not unitary.
2. An order of the Board of Tax Appeals (BOTA)fails to comply with K.S.A. 77-526(c) if the order lacks separately stated findings of fact, conclusions of law, and policy reasons for the decision.
3. As to questions of law, BOTA exists to decide tax matters; therefore, its decisions should be given due consideration when it is acting within its area of expertise. Nevertheless, the determination of an administrative body on questions of law is not conclusive and, while persuasive, is not binding on the courts. The appellate courts have unlimited review of questions of law.
4. Under K.S.A. 79-3230(e) (Ensley 1989), when a taxpayer enters into an extension agreement with the Internal Revenue Service, a concurrent extension for the assessment of state tax liability commences. The state extension lasts for the entire agreed upon federal extension, and the state assessments are unlimited in scope.
5. The doctrine of equitable estoppel does not operate against the State or against the State's governmental agencies in respect to taxation.
6. The Due Process and Commerce Clauses of the United States Constitution do not allow a state to tax income arising out of interstate activitieseven on a proportional basisunless there is a minimal connection or nexus between the interstate activities and the taxing state and a rational relationship between the income attributed to the state and the intrastate values of the enterprise.
7. A multistate business is a unitary business for income tax purposes when the operations conducted in one state benefit and are benefitted by the operations conducted in another state or states. If its various parts are interdependent and of mutual benefit so as to form one integral business rather than several business entities, it is unitary.
8. Whether a multistate business is separate or unitary depends upon the manner in which the business is conducted. The essential test to be applied is whether the operation of the portion of the business within the taxing state is dependent upon or contributory to the operation of the business outside the state. If there is such a relationship, the business is unitary.
9. The determination of whether business operations constitute a unitary business is often difficult and depends on the facts of each case.
10. Various portions of a business may be carried on exclusively in different states without destroying its unitary character if the integral parts are of mutual benefit to one another.
11. The Department of Revenue promulgated K.A.R. 92-12-72 to assist in determining whether business operations are unitary. The factors listed in K.A.R. 92-12-72, in addition to other factors, are to be considered along with the entire record to determine whether the in-state business operations are dependent upon or contributory to the operation of the business outside the state.
12. If a taxpayer is engaged in a unitary business, then, under K.S.A. 79- 32,141, the Department of Revenue may require the taxpayer to file state income tax returns using the combined report formula method.
Appeal from Kansas Board of Tax Appeals. Opinion filed February 15, 2002. Affirmed in part and reversed in part.
James Bartle, of Legal Services Bureau, for appellant Kansas Department of Revenue.
S. Lucky DeFries and Jeffrey A. Wietharn, of Coffman, DeFries & Nothern, a Professional Association, of Topeka, for appellees Lee Apparel Company, Inc., et al.
Before KNUDSON, P.J., PIERRON and GREEN, JJ.
GREEN, J.: This appeal arises out of the audit conducted by the Kansas Department of Revenue (the Department) on Lee Apparel Company, Inc. (Lee), Troutman Industries, Inc. (Troutman), and Blue Bell, Inc. (Blue Bell), collectively referred to as the taxpayers, for calendar years 1988 through 1990. As a result of its audit, the Department determined that the taxpayers, together with their parent company VF Corporation (VF), and VF's numerous other subsidiaries, were engaged in a unitary business and should have determined their Kansas income tax liabilities using the combined report method. The Department recomputed the tax due and issued three corporate income tax assessments consisting of tax, penalty, and interest in the total amount of $2,907,448.
The taxpayers appealed to the Director of Taxation, contending that VF and its subsidiaries were not unitary. In addition, the taxpayers assert that the assessments for years 1988 and 1989 were barred by the statute of limitations. With the exception of the statutory penalties, which were abated, the Department's assessments were upheld. The Director later denied the taxpayers' petition for review.
When the taxpayers appealed the Director's decision to the Board of Tax Appeals (BOTA), BOTA reversed the Director on both the unitary issue and the statute of limitations issue, which effectively invalidated the Department's assessments.
On appeal, the Department contends that BOTA failed to clearly state and apply the applicable legal presumptions. This issue was previously considered in In re Tax Appeal of Broce Construction Co., 27 Kan. App. 2d 967, 9 P.3d 1281, rev. denied 270 Kan. ___ (2000), and we will not reexamine the issue here. Instead, we adopt Broce's holding and note that BOTA failed to clearly state that it would presume the Department's determination of unity was correct and that the taxpayers had the burden of proving otherwise. 27 Kan. App. 2d 980-81.
The Department additionally contends that BOTA's order failed to comply with the Kansas Administrative Procedures Act (KAPA), K.S.A. 77-501 et seq. We agree that BOTA's order failed to comply with K.S.A. 77-526(c) because the order failed to include separately stated findings of fact, conclusions of law, and policy reasons for its decision.
The Department raises two additional issues that merit considerable analysis. First, the Department argues that its assessments for the years 1988 and 1989 were not barred by the statute of limitations. We agree. Additionally, the Department maintains that the taxpayers, together with VF and VF's other subsidiaries, were engaged in a unitary business for the years 1988 and 1989. We affirm in part and reverse in part.
VF is a Pennsylvania corporation with its home office in Wyomissing, Pennsylvania. VF is the world's largest publicly owned apparel company, and its principal business is the designing, manufacturing, and marketing of apparel products.
Originally incorporated in 1899 as the Reading Glove & Mitten Manufacturing Company and later known as Vanity Fair Silk Mills, VF operated for many years as a manufacturer of lingerie and intimate apparel. In 1969, it changed its name to VF Corporation and expanded its operations by acquiring companies such as The H.D. Lee Co., Inc. (jeans, 1969); Kay Windsor (lingerie, 1971); Modern Globe (lingerie, 1984); and Bassett-Walker (fleecewear, 1984). In 1986, VF acquired Blue Bell (manufacturer of Wrangler and Rustler jeans, Jantzen and JanSport sportswear, and Red Kap and Big Ben occupational clothing).
VF is a holding company that owns, either directly or indirectly, all of the stock in Lee, Troutman, Blue Bell and numerous other subsidiaries. Many of these subsidiaries are engaged in apparel manufacturing, marketing, and retailing, although others perform functions that complement or support the apparel operations. In each year of the audit period, VF had 22 active subsidiaries, although not all of the same 22 subsidiaries were active in each of those 3 years.
The taxpayers were all in the business of manufacturing various types of apparel. Lee manufactured jeans and jeanswear products. Troutman manufactured Pepsi-branded apparel. Blue Bell had several divisions that manufactured jeans and occupational clothing.
During the audit period, each of the taxpayers had business operations in Kansas. Lee is a Pennsylvania corporation with its home office in Merriam, Kansas. Troutman is a North Carolina corporation and maintained its home office in Lenexa, Kansas, before 1989 when it was merged into Lee. Blue Bell is a Delaware corporation with its home office in Greensboro, North Carolina.
Statute of Limitations
The Department argues that the tax assessments for tax years 1988 and 1989 were not barred by the statute of limitations. A statute of limitations does not run against the State unless expressly so provided, and all doubts as to whether it shall run are to be resolved in favor of the State. KPERS v. Reimer & Koger Assocs., Inc., 262 Kan. 635, Syl. ¶ 4, 941 P.2d 1321 (1997).
As to questions of law, BOTA exists to decide tax matters; therefore, its decisions should be given due consideration when it is acting within its area of expertise. Nevertheless, "'the determination of an administrative body on questions of law is not conclusive, and while persuasive, is not binding on the courts.' [Citation omitted.]" Board of Johnson County Comm'rs v. Smith, 18 Kan. App. 2d 662, 664-65, 857 P.2d 1386 (1993). The appellate courts have unlimited review of questions of law. Gillespie v. Seymour, 250 Kan. 123, 129, 823 P.2d 782 (1991).
As the appellant, the Department has the burden of proving that BOTA's actions were in error. K.S.A. 77-621(a)(1). The Department claims that it is entitled to relief because in finding that the 1988 and 1989 assessments were made outside the statute of limitations (1) BOTA erroneously interpreted and applied the law; and (2) BOTA's decision is unreasonable, arbitrary, or capricious.
Under K.S.A. 79-3230(a) (Ensley 1989), the statute in effect for the 1989 tax year, the Department was required to assess income taxes within 3 years after the taxpayers' returns were filed or when the taxes as shown thereon were paid, whichever was the later date. For the tax year 1988, the period of limitations was 4 years. K.S.A. 79-3230(a) (Ensley 1984). The Department concedes that its assessments dated October 20, 1993, were issued more than 3 years after the taxpayers' 1989 returns were filed and more than 4 years after the 1988 returns were filed.
However, the Department relies on K.S.A. 79-3230(e) (Ensley 1989) in arguing that its assessments are not barred by the statute of limitations. The statute provides:
"(e) Before the expiration of time prescribed in this section for the assessment of additional tax or the filing of a claim for a refund, the director of taxation is authorized to enter into an agreement in writing with the taxpayer consenting to the extension of the periods of limitations as defined in this act for the assessment of tax or for the filing of a claim for refund, at any time prior to the expiration of the period of limitations. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. An agreement between the taxpayer and the internal revenue service providing for the extension of the period for assessment of federal income taxes shall constitute an agreement with the director of taxation to extend the period for assessment of income taxes under the provisions of the Kansas income tax act. A copy of all such agreements and extensions thereof shall be filed with the director of taxation within 30 days after their execution." (Emphasis added.)
The above-quoted statutory language was also in effect for the 1988 tax year. K.S.A. 79- 3230(e) (Ensley 1984).
Although K.S.A. 79-3230(e) was amended in 1997 to eliminate any reference to extension agreements between a taxpayer and the IRS, the amendment was not retroactive. The taxpayers, however, argue that the amendment did not change the existing law but rather clarified the Department's longstanding policy that it could not reopen an audit period when the IRS issued an extension for the assessment of federal income taxes. The taxpayers' argument, however, is contrary to our rule of statutory construction that "[w]hen the legislature revises an existing law, it is presumed that the legislature intended to change the law as it existed prior to the amendment. [Citation omitted.]" Kaul v. Kansas Dept. of Revenue, 266 Kan. 464, 471, 970 P.2d 60 (1998), cert. denied 528 U.S. 812 (1999). As a result, we find that the issue of whether the Department's assessments were timely is controlled by K.S.A. 79-3230(e) (Ensley 1989) because that version of the statute was in effect during the tax years in question. However, K.S.A. 79-3230(e) (Ensley 1989) has not been interpreted by a Kansas appellate court and, as a result, whether the Department's assessments were timely under that statute is an issue of first impression.
The Department claims that its assessments for tax years 1988 and 1989 were timely because the taxpayers entered into agreements with the IRS to extend the period for assessment of federal income taxes with respect to tax years 1988 and 1989. The IRS was authorized to assess taxes for those years at any time on or before December 31, 1994. As such, the Department argues that its assessments issued on October 20, 1993, were timely because the assessments were made before the December 31, 1994, federal deadline.
Rejecting the Department's position and determining that the assessments were made outside the statute of limitations based on the policies and practices of the Department, BOTA's order stated:
"[T]he Department had a long-standing policy not to extend the statute of limitation based solely on a federal extension.
"The Board finds that the 1989 amendment would apply to the tax assessments issued here. The law and the practice at the time the taxes were paid was that there was only a three year window of opportunity for the Department to audit and issue an assessment, and that the agreement with the I.R.S. would not be extended to the Department. It is true that the 79-3230(e) was later amended to delete the provision concerning the I.R.S. amendment. However, the testimony of the witnesses indicates that the amendment was to clarify the statute and to codify the existing practice. Furthermore, the testimony indicates that the provision in 79-3230(e) prior to the amendment was thought by the Department to be of dubious legality. Therefore, the assessments for the 1988 and 1989 should be abated."
As noted previously, the taxpayers rely heavily on the Department's long-standing policy to not reopen an audit period when the IRS issued an extension for assessment of federal income taxes. The taxpayers make an alternative argument that even if the Department could reopen an audit period when the IRS issued an extension, the federal waiver did not extend the state limitations period except to address changes resulting from the federal review. The taxpayers point out that the Department's assessments were not prompted by a federal adjustment. Instead, the Department assessed the additional tax based upon a determination that the taxpayers were unitary, which is not a federal issue.
To support its position that a federal extension should not affect the state limitations period except to address changes resulting from federal review, the taxpayers cite Kelly-Springfield Tire v. Bd. of Tax Rev., 414 N.W.2d 113 (Iowa 1987), aff'd sub nom., Shell Oil Co. v. Iowa Dept. of Revenue, 488 U.S. 19 (1988). The Kelly-Springfield court addressed whether the Iowa Department of Revenue's right to assess additional tax liability during an extended 6-month period following a federal audit was unlimited in scope or limited to corrections resulting from action taken in a federal review. The statute in question provided in pertinent part:
"Notwithstanding the periods of limitation for examination and determination heretofore specified, the department shall have six months to make an examination and determination from the date of receipt by the department of notice from the taxpayer of the final disposition of any matter between the taxpayer and the internal revenue service with respect to the particular tax year." Iowa Code § 422.25(l) (1977).
The Kelly-Springfield court found that under the statute, the Iowa Department of Revenue was restricted from assessing additional tax liability unless the federal audit altered circumstances affecting the taxpayer's Iowa tax liability. 414 N.W.2d at 115-16.
The taxpayers' reliance on Kelly-Springfield, however, is misplaced because the statute addressed in that case is substantially different from K.S.A. 79-3230(e) (Ensley 1989). Instead, the statute addressed in Kelly-Springfield is analogous to K.S.A. 79- 3230(f) (Ensley 1989), which provides:
"Any taxpayer whose income has been adjusted by the federal internal revenue service is required to report such adjustments to the Kansas department of revenue by mail within 180 days of the date the federal adjustments are paid, agreed to or become final, whichever is earlier. Such adjustments shall be reported by filing an amended return for the applicable taxable year and a copy of the revenue agent's report detailing such adjustments. . . .
"Notwithstanding the provisions of subsection (a) or (c) of this section, additional income taxes may be assessed and proceedings in court for collection of such taxes may be commenced and any refund or credit may be allowed by the director of taxation within 180 days following receipt of any such report of adjustments by the Kansas department of revenue. No assessment shall be made nor any refund or credit shall be allowable under the provisions of this paragraph except to the extent the same is attributable to changes in the taxpayer's income due to adjustments indicated by such report."
Clearly, K.S.A. 79-3230(f), not K.S.A. 79-3230(e), authorizes the Department to assess state taxes based on federal income adjustment. The plain language of K.S.A. 79- 3230(f) provides that assessments may be issued thereunder only to the extent they are attributable to federal income adjustments. In contrast, K.S.A. 79-3230(e) imposes no restrictions on the scope of the Department's ability to assess taxes, provided such assessments are issued within the extended time period agreed upon between the taxpayer and the IRS.
The Department points out that K.S.A. 79-3230(e) is similar to the statute addressed in Dept. of Rev. v. Gen. Motors Acceptance, 188 Ariz. 441, 937 P.2d 363 (Ct. App. 1996). The statute addressed in that case provided:
"If a taxpayer agrees with the United States commissioner of internal revenue for an extension or renewals of the period for proposing and assessing deficiencies in federal income taxes for any year, the period for mailing a notice of a proposed income tax deficiency is four years after the return was filed or six months after the date of the expiration of the agreed period for assessing deficiencies in the federal income tax, whichever period expires later." Arizona Rev. Stat. Ann. § 42-113(B)(7) (1991).
The GMAC court held that this statute permits the Arizona Department of Revenue to assess state tax deficiencies during the extended limitation period that are unrelated to adjustments made by the IRS in the taxpayer's federal income tax liability. In so holding, the GMAC court rationalized:
"In contrast to the statute at issue in Kelly-Springfield, A.R.S. section 42-113(B)(7) does not provide for a discrete six-month assessment period that begins upon [the Arizona Department of Revenue's] receipt of notice that a federal audit has altered the taxpayer's federal tax liability. Instead, section 42-113(B)(7) provides that when a taxpayer enters into an extension agreement with the IRS, a concurrent extension of the state assessment limitation commences, and that extension lasts during the entire agreed federal extension and ends six months thereafter. The extension arises under [the statute] regardless of whether the federal audit yields any tax adjustment." 188 Ariz. at 445.
The GMAC court further noted that where a taxpayer enters into an extension agreement with the IRS "it is reasonable to accord [the Arizona Department of Revenue] a similar extension for that tax year regardless of whether the two agencies pursue the same lines of inquiry." 188 Ariz. at 445.
The rationale applied in GMAC is persuasive. Similar to the statute addressed in that case, K.S.A. 79-3230(e) (Ensley 1989) does not reference federal income adjustments and does not in any way limit the scope of the Department's ability to assess taxes, other than to require that the assessments be made within the period agreed upon by the taxpayers and IRS. Rules of statutory interpretation prohibit this court from reading the statute "to add that which is not readily found therein or to read out what as a matter of ordinary English language is in it." Matjasich v. Kansas Dept. of Human Resources, 271 Kan. 246, 252, 21 P.3d 985 (2001). Moreover,
"[t]ax statutes will not be extended by implication beyond the clear import of the language employed therein; their operation will not be enlarged so as to include matters not specifically embraced. [Citation omitted.] Where there is reasonable doubt as to the meaning of a taxing act, it will be construed most favorably to the taxpayer. [Citation omitted.]" Board of Leavenworth County Comm'rs v. McGraw Fertilizer Serv., Inc., 261 Kan. 901, 905, 933 P.2d 698, mod. on reh. on other grounds, 261 Kan. 1082, 941 P.2d 1388 (1997).
Reasonable doubt does not exist as to the meaning of K.S.A. 79-3230(e) (Ensley 1989). The plain language of the statute provides that when a taxpayer enters into an extension agreement with the IRS, a concurrent extension for the assessment of state tax liability commences. Moreover, the statute clearly provides that the state extension lasts for the entire agreed upon federal extension. Furthermore, the plain language of K.S.A. 79-3230(e) (Ensley 1989) does not limit the state assessments to federal income adjustments. Instead, the assessments allowed under the statute are unlimited in scope.
The taxpayers suggest that the Department should be estopped from relying on K.S.A. 79-3230(e) (Ensley 1989). This argument is without merit because the doctrine of equitable estoppel does not operate against the State or against the State's governmental agencies in respect to taxation. See Harvey County Comm'rs v. School District, 139 Kan. 457, 459, 32 P.2d 812 (1934).
Because the taxpayers entered into an agreement with the IRS to extend the period for assessment of federal income taxes with respect to tax years 1988 and 1989, the Department's assessments for those tax years issued during the federal extension were timely under K.S.A. 79-3230(e) (Ensley 1989). As a result, we reverse BOTA's determination that the Department's assessments of tax liability for tax years 1988 and 1989 were time barred.
Unitary Business
The Department additionally argues that BOTA erred in determining that the taxpayers and the VF Group were not engaged in a unitary business during the audit period. "BOTA orders are subject to judicial review pursuant to the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq." In re Tax Appeal of Derby Refining Co., 17 Kan. App. 2d 377, 380, 838 P.2d 354 (1992), rev. denied 252 Kan. 1092 (1993). K.S.A. 77-621 provides:
"(c) The court shall grant relief only if it determines any one or more of the following:
. . . .
"(7) the agency action is based on a determination of fact, made or implied by the agency, that is not supported by evidence that is substantial when viewed in light of the record as a whole, which includes the agency record for judicial review, supplemented by any additional evidence received by the court under this act." (Emphasis added.)
"Substantial evidence is such legal and relevant evidence as a reasonable person might accept as being sufficient to support a conclusion." In re Tax Appeal of Collingwood Grain, Inc., 257 Kan. 237, Syl. ¶ 2, 891 P.2d 422 (1995).
As noted previously, the Department, as the appellant, has the burden of proving that BOTA's actions were in error. K.S.A. 77-621(a)(1). The Department claims it is entitled to relief because in finding that the taxpayers did not engage in a unitary business (1) BOTA erroneously interpreted and applied the law; (2) BOTA's action was not based on substantial evidence; and (3) BOTA's action was unreasonable, arbitrary, or capricious.
In defining a unitary business and adopting the test to be applied in determining a unitary business, our Supreme Court in Crawford Manufacturing Co. v. State Comm. of Revenue and Taxation, 180 Kan. 352, Syl. ¶¶ 1, 2, 304 P.2d 504 (1956) stated:
"A multistate business is a unitary business for income tax purposes when the operations conducted in one state benefit and are benefitted by the operations conducted in another state or states. If its various parts are interdependent and of mutual benefit so as to form one integral business rather than several business entities, it is unitary."
"Whether a multistate business is separate or unitary depends upon the manner in which its business is conducted. The essential test to be applied is whether or not the operation of the portion of the business within the state is dependent upon or contributory to the operation of the business outside the state. If there is such a relationship, the business is unitary."
See In re Tax Appeal of Panhandle Eastern Pipe Line Co., 272 Kan. ___, Syl. ¶ 12, ___ P.3d ___ (2002); In re Tax Appeal of A.M. Castle & Co., 245 Kan. 739, Syl. ¶¶ 2, 3, 783 P.2d 1296 (1989); Pioneer Container Corp. v. Beshears, 235 Kan. 745, Syl. ¶¶ 3, 4, 684 P.2d 396 (1984); In re Tax Appeal of Broce Construction Co., 27 Kan. App. 2d 967, 971, 9 P.3d 1281, rev. denied 270 Kan. ___ (2000). The test is referred to as the dependency or contribution test. Castle, 245 Kan. at 743.
"In determining whether two or more business entities actually constitute a unitary business for state income taxation purposes, the application of the . . . [test] is much more difficult than the definition of the test itself." 245 Kan. at 744. The Department has promulgated K.A.R. 92-12-72 to assist in determining whether the activities of a corporation or group of corporations constitute a single trade or business. In K.A.R. 92- 12-72, it is recognized that "[t]he determination of whether the activities of the taxpayer constitute a single trade or business or more than one (1) trade or business will turn on the facts in each case." Although each case must be determined on its own facts, there is "a strong presumption that the activities of the taxpayer constitute a single trade or business" when:
"(a) . . . all of its activities are in the same general line.
"(b) A taxpayer is almost always engaged in a single trade or business when its various divisions or segments are engaged in different steps in a large, vertically structured enterprise.
"(c) A taxpayer who might otherwise be considered as engaging in more than one (1) trade or business is properly considered as engaged in one (1) trade or business when there is strong centralized management, coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing. Thus, some conglomerates may properly be considered as engaged in only one (1) trade or business when the central executive officers are normally involved in the operations of the various divisions and there are centralized offices which perform for the divisions the normal matters which a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising, or financing." K.A.R. 92-12-72.
Nevertheless, our Supreme Court in Castle stated that the factors under K.A.R. 92-12-72 were not the only factors to be considered. The Castle court pointed out that "[o]ther factors also must be considered in reaching a determination of whether [businesses] were unitary in their operation. The entire record must be examined in the light of the [dependency or contribution] test adopted in Crawford and Pioneer." Castle, 245 Kan. at 744.
If a taxpayer is engaged in a unitary business, then the Department may require the taxpayer to file state income tax returns using the combined report formula method. K.S.A. 79-32,141. This filing method "calculates the local tax base by first defining the scope of the 'unitary business' of which the taxed enterprise's activities in the taxing jurisdiction form one part." Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159, 165, 77 L. Ed. 2d 545, 103 S. Ct. 2933 (1983). In other words, the first step is to determine what "property, income, or receipts are properly includable in the 'pie' of which the state is attempting to take its fair 'slice' by means of an apportionment formula." 1 Hellerstein & Hellerstein, State Taxation, p. 8-56 (3d ed. 2000). Accordingly, before applying the combined report formula apportionment method of accounting, it is first necessary to determine the apportionable tax base by determining the scope of the unitary business.
Here, the Department was precluded from requiring the taxpayers to file under the combined report formula method because BOTA found that the taxpayers did not participate in a unitary business. Specifically, BOTA found that "[a]n examination of the evidence does not show that there is the requisite dependency or contribution within the Vanity Fair group such that the Taxpayers are unitary."
Proper Application of the Unitary Business Principle
On appeal, the Department argues that VF and its subsidiaries were unitary. Before addressing the factual issue of whether the taxpayers participated in a unitary business, we find it necessary to discuss the legal questions of whether the Department properly applied (1) the presumption that business operations are unitary if they are engaged in the same general line of business; and (2) the dependency or contribution test. We note that while it is difficult to determine whether corporations are unitary, application of the