The New York State Tax Appeals Tribunal ruled the New York State Department of Taxation and Finance could not decombine taxpayers’ New York combined filing group for tax years 2002-2004. The Tribunal’s ruling upholds the ALJ’s determination that there was a sufficient flow of value between entities engaged in related lines of businesses and that reimbursements to the taxpayers’ parent holding company for key services performed on taxpayers’ behalf were made at cost. The taxpayers were wholesale/retail distributors that formed part of the U.S. branch of an Italian clothing business that sold luxury Italian clothing and apparel in New York. The taxpayers’ remaining group member, the domestic parent holding company, performed the management and related support services necessary for the taxpayers’ day-to-day business operations. The parent provided these services at cost to its subsidiaries. No intercompany agreements memorialized the group’s transactions, and the group made and received intercompany payments using a common cash management system during the years at issue. On these facts, the Tribunal held that the taxpayers could file a combined report because the criteria for filing a combined New York return were met: the ownership requirement, the unitary business requirements, and the “distortion” requirement pursuant to Section 211(4)(a)(4) of the New York Tax Law and Section 6-2.2(a)-(b) of the New York Codes, Rules and Regulations, Title 20. Focusing on the latter two criteria, the Tribunal first determined that the taxpayers met the standard for a unitary business because they were engaged in the same or related lines of business: the taxpayers sold Italian clothing, and their parent serviced and managed businesses that sold Italian clothing. The Tribunal also determined there was a sufficient flow of value between and among the three entities to satisfy the federal constitutional standard for a unitary business, due to their common president, centralized management and administrative support, and common cash management system. Regarding the “distortion” requirement, the Tribunal found dispositive the fact that the parent provided key services to the taxpayers “at cost” during the years at issue and held this resulted in distortion. The Tribunal also disagreed with the ALJ’s finding that the taxpayers had never made payments for management services provided by the parent because no actual payments had occurred, holding instead that such transactions were deemed “paid for purposes of determining distortion” because taxpayers had memorialized these transactions among their books and records, consolidated financial statements, and pro forma tax returns. The Department is not permitted to appeal the Tribunal’s decision. By providing an example of taxpayer facts that satisfy the “distortion” requirement, this case is relevant for business taxpayers who seek to defend their New York combined filing group as well as for those who face forced combination by the Department. In the Matter of IT USA, Inc., DTA Nos. 823780; 823781 (N.Y. Tax App. Trib. Apr. 16, 2014).