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State & Local Tax Bulletin (August 1997)

Upcoming Developments in
California Unitary Taxation




By Jeffrey M. Vesely, a tax partner in the San Francisco office of Pillsbury Winthrop Shaw Pittman LLP. If you have or can obtain the Acrobat Reader, or have an Acrobat-enabled web browser, you may wish to download or view our August 1997 State & Local Tax Bulletin (a 136K pdf file), containing a printed version of this article and also available via ftp at ftp.pmstax.com/state/bull9708.pdf.

This information is only of a general nature, intended simply as background material, omits many details and special rules and cannot be regarded as legal or tax advice.


As always, there is a tremendous amount of unitary tax activity in California. On the legislative front, there is renewed momentum to enact elective combination legislation and, to a lesser extent, to enact further water's edge election relief provisions. Administratively, the FTB is purportedly getting closer to releasing proposed deferred intercompany transaction regulations. On the litigation front, there are a number of cases pending in California which should be closely monitored.

  • Guy F. Atkinson Company v. FTB. Should tax credits be applied on a unitary or separate company basis? A refund suit has been filed in the San Francisco Superior Court. Trial should occur within a year.

  • Ashland Inc. v. FTB. In California, is there a separate functional test for determining whether income is business or nonbusiness? This issue has not yet been decided by California courts. This case, which is due to go to trial in Sacramento later this year, involves both the sale of stock in a Canadian subsidiary and the sale of virtually all of the Company's exploration assets.

  • F. W. Woolworth v. FTB; Hunt-Wesson v. FTB. In these cases, the interest offset rule is under constitutional attack. In Woolworth, it was upheld. In Hunt-Wesson, it was held to be unconstitutional. Both are on appeal.

  • Appeal of Yale Industries. Is California's dividend received deduction statute unconstitutional? The case is fully briefed and awaiting oral argument before the SBE.

In California, the unitary tax is never quiet. The next few months should be interesting.


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