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.
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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
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
- 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
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