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Alaska Supreme Court holds combined group must include portion of foreign dividends in income tax base

The Alaska Supreme Court has determined that a unitary group was required to include 20% of foreign dividends in its combined corporation net income tax return. Under the Alaska net income tax, corporations must include 20% of dividend income received from foreign corporations. However, Internal Revenue Code Section 882 requires a foreign corporation to report only income effectively connected with the conduct of business within the United States. Because the federal provision was inconsistent with Alaska law and not adopted by reference, Alaska law controlled and the taxpayer was required to include a portion of the foreign dividends.

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