The nonfinancial corporate business sector consists of all private for-profit domestic nonfinancial corporations. S corporations, which have 35 or fewer stockholders and are taxed as if they were partnerships, are included in this sector. Corporate farms are also included. Holding companies and equity real estate investment trusts, or REITs, which are considered financial businesses in the flow of funds accounts (FFA), are excluded from this sector.
This table covers only the domestic activities of nonfinancial corporations, including U.S. operations that are foreign owned; it does not include the foreign subsidiaries of U.S. corporations. Therefore, earnings from the operations of foreign subsidiaries of U.S. corporations are reflected only in profit detail either as earnings retained abroad or as dividends received. Domestic corporations' investment in foreign operations that results in ownership of more than 10 percent is shown as U.S. direct investment abroad, an asset of this sector. Similarly, foreign corporations' investment in U.S. operations that results in ownership of more than 10 percent is shown as foreign direct investment in the United State, a liability.
The benchmark data source for this sector is the Statistics of Income (SOI), compiled from tax returns filed with the Internal Revenue Service. The SOI consolidates financial subsidiaries with their nonfinancial parent corporations. Because some large manufacturing corporations own finance companies, in the flow of funds accounts, the SOI data on manufacturing corporations are replaced with data from the Census Bureau's Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, which excludes these financial subsidiaries.
Unidentified miscellaneous assets, which is calculated residually, may include such items as deferred charges and prepaid expenses, goodwill, other intangible assets, and intercorporate holdings of corporate equity. Intangibles can include such items as copyrights, patents, distribution rights and agreements, easements (gas, water, and mineral rights), franchises and franchise fees, trademarks, and client lists. Unidentified miscellaneous liabilities, which is also calculated residually, may include such items as unfunded pension liabilities of corporations and loans from private equity funds and hedge funds.
A memo item shows the financing gap, which is an indicator of the corporate sector's need to borrow. It is calculated as the difference between capital expenditures and the sum of U.S. internal funds and an inventory valuation adjustment. Net lending or net borrowing in the capital account is almost the same as the financing gap, but it includes undistributed profits of foreign subsidiaries, which are excluded from the FFA calculation of U.S. internal funds.