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State & Local Tax Bulletin
(Volume 1, Number 4, September 1995)

Upcoming Developments in
California Unitary Taxation




By Jeff Vesely, a tax partner in the San Francisco office of Pillsbury Winthrop Shaw Pittman LLP.

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.


In California, the unitary tax landscape seems to be always changing. Witness the recent developments regarding the combination of holding companies (Appeal of PBS Building Systems, Inc., et al. (SBE, Nov. 17, 1994)); the modification of California's dock sale rule (FTB Legal Ruling 95-3, July 20, 1995); and the intrastate apportionment of tax payments (FTB Legal Ruling 95-2, July 7, 1995).

On the horizon, there are a number of interesting cases which may further alter the landscape in California and which should be closely followed.

  • Appeal of Guy F. Atkinson Company. The issue is whether tax credits should be applied on a unitary or separate company basis. The case is fully briefed and awaiting oral argument before the SBE.

  • Appeal of CTI Holdings, Inc., et al. The issue presented is whether foreign withholding taxes on intercompany dividends and royalties paid by unitary subsidiaries should be deductible or eliminated. Oral argument was held in May 1995. A decision should be forthcoming.

  • F.W. Woolworth Co., et al. v. FTB. Trial was recently held in San Francisco with a decision due any day. Case involves the constitutionality of the interest offset as applied to dividends received by an out-of-state corporation from nonunitary subsidiaries.

  • Brown Group Retail, Inc. v. FTB. Following a trial court decision in favor of the plaintiff, this case is awaiting oral argument in the Court of Appeal. The issue is whether the FTB can redistribute the California property, payroll and sales of an immune member of a unitary group, to a member which is present in California, thereby increasing the latter's California income. The court may not reach this issue since the FTB is contesting the immunity of the out-of-state corporation on a factual basis under Public Law 86-272.

  • Nissin Foods (USA) Co., Inc. v. FTB. This case, which is scheduled for trial in January 1996, raises the issue, left undecided in Barclays, whether California's worldwide combined reporting methodology is barred by the U.S./France and U.S./Japan Friendship, Commerce and Navigation Treaties.

California is never far removed from controversy when unitary business issues are concerned. The next few months should prove to be no exception. Stay tuned.


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