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Sec. 267 , as well as Code Sec. 1563 . 30 Under CodeSec. 267(b) , two corporations are related if there ismore than 50 percent common ownership. 31 A morethan 50-percent ownership test also applies for purposesof the Tennessee addback provision. 32 For purposesof the Alabama addback provision, a relatedmember includes but is not limited to any memberof a federal affiliated group (which requires 80 percentor more common ownership and is generallylimited to domestic corporations) that has elected tofile a federal consolidated tax return. 33 The Michiganaddback statute does not provide an explicit commonownership threshold, but instead defines a relatedmember as a "person related to the taxpayerby ownership or control." 34 Finally, the Illinois addbackprovision applies to payments made to (1) aforeign person that is excluded from the Illinois unitarybusiness group because it qualifies as an 80/20company, and (2) a person that is excluded fromthe unitary business group because it is required touse a specialized industry apportionment formula,such as a financial organization or a transportationcompany. An 80/20 company is a related corporation(more than 50-percent control test) whosebusiness activity outside the United States is 80percent or more of its total business activity. 35Exceptions To Addback RequirementState addback provisions are designed to prevent corporationsfrom using intercompany financing andlicensing arrangements to avoid state income taxes.These provisions generally apply automatically to allrelated party interest expenses and intangible expenses,including those related party payments that are motivatedby legitimate business purposes rather than taxavoidance. As a consequence, each state provides somerelief in the form of exceptions from the automatic addbackrequirement. These exceptions are complex andvary from state to state. Nevertheless, they do sharesome common themes (see Table 3 for a summary).Table 3. Exceptions to Addback RequirementAlabamaArkansasRecipient’s incomeis taxed by a foreigncountryIncome is taxed by a foreigncountry with U.S. tax treatyand recipient is a resident ofthat foreign countryIncome is taxed by a foreigncountry with U.S. tax treatyRecipient’s incomeis taxed by a U.S.state Conduit payment OtherIncome is taxed by a stateIncome is taxed by a stateExpenses pass through to unrelatedthird party, and other requirementsare met• Adjustment is unreasonable• Taxpayer agrees to alternateadjustment• Principal purpose of transactionis not tax avoidance, and recipientis not primarily engaged inactivities involving intangibles orfinancing of related entities• Taxpayer agrees to alternateadjustment• Recipient is in nontax location,50 full-time employees, andproperty and revenue both exceed$1 million•Transactions is not intended toavoid tax and is conducted atarm’s length42