Brady Company manufactures automobiles. Brady is a domestic company with its commercial domicile (corporate headquarters) in Michigan.All of its executives and support staff employees reside in Detroit. Brady owns and operates car assembly plants in Michigan, Missouri, Tennessee, and Ohio. The following are wholly owned(100% owned) subsidiaries of Brady:

Smart Company owns a car assembly plant in Kentucky. Smart was acquired many years ago by Brady and Brady continues to operate Smart as a wholly owned subsidiary because of employee benefit issues.

Parts Company manufactures engines, and other car parts which are used in the assembly of Brady cars. Parts has manufacturing plants in Illinois, Indiana, and Iowa. Parts sells its products to Smart and Brady at arms length transfer prices.

Venture Company is a German Company which assembles automobiles in Dusseldorf. Its cars are sold throughout Europe. Venture purchases some components from Parts, but mostly buys inputs from suppliers in Europe.

Creative Company is a Delaware subsidiary which is engaged in land development in Michigan, Illinois, and Alabama. Creative took over plants shut down by Brady, razed the buildings, and used the land to develop shopping malls, low income housing, and office buildings. The subsidiary has been very profitable.

You are employed in Brady's tax department. Please provide answers to the following questions:

1. Assume that Kentucky has enacted an income tax in 2021. You learn the state will require the filing of waters edge combined returns using the unitary principle. The state will use the three factor apportionment scheme under UDITPA. Discuss how you will determine the apportionable income and apportionment factors for the state. Specifically, which companies would be part of the Kentucky combined return. Provide your reasons why.
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3. Assume that Brady (the parent company) earns a substantial amount of capital gain income in 2021 because its CFO decided to sell an investment portfolio of stocks and bonds it has held for several years. You are preparing the income tax return for Illinois for 2021, and Illinois follows combined return reporting. Explain whether the capital gains will need to be included in the base of apportionable income on the Illinois return. What additional information might you need to get?