State & Local Tax Bulletin
(Volume 1, Number 4, September
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
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
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
- 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
- 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
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
worldwide combined reporting methodology is barred by the U.S./France
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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