Court Opinion

ID: 9722723
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:47:26.189597+00
Date Added: 2024-06-11T18:24:39.304218
License: Public Domain

WOOD, P. J.
I dissent. I would follow the decision in Safeway Stores, Inc. v. Franchise Tax Board, 3 Cal.3d 745 [91 Cal.Rptr. 616, 478 P.2d 48], and would affirm the judgment of the trial court herein. In that case dividends were received from subsidiaries in a foreign country (Canada) and “Most of such dividends were received from Canadian subsidiaries, which did business only outside California.” In the present case, dividends were received from subsidiaries in foreign countries, including England. The factual background of the Safeway decision (i.e., single unitary and foreign dividends) was the same as the factual background of the present case. The Safeway decision set forth a detailed apportionment formula for computing taxes under the factual circumstances of that case which included dividends, of a single unitary business, received from in a foreign country. In the majority opinion in the present case it is stated that in the Safeway case the issue of what impact taxes paid by a foreign subsidiary has upon the dividend deduction of Revenue and Taxation Code section 24402, or its predecessor section, was not before the Supreme Court and apparently was not considered by it. Since the opinion in Safeway states that most of the dividends were from Canadian subsidiaries, it is thereby indicated that foreign dividends were a major subject therein for application of the apportionment formula set forth in the opinion. It would seem that the formula set forth in Safeway which determined the taxes to be paid by Safeway on foreign dividends should also be applicable in determining taxes to be paid by plaintiff Max Factor herein on foreign dividends.
In the present case, plaintiff Max Factor and its subsidiaries were in a single unitary business, and the distributions to plaintiff from the subsidiaries were designated “entirely as dividends” in their books and records. Appellant Factor argues that the “dividends” were “not divi*16dends at all”; that although the distributions were paid to plaintiff in the “form” of dividends, they should be treated as adjustments of inter-company accounts. As said in Pacific Tel. & Tel. Co. v. Franchise Tax Bd., 7 Cal.3d 544, 556 [102 Cal.Rptr. 782, 498 P.2d 1030], the court in Safeway that dividends received by a domiciliary corporation from corporations engaged in a unitary business were includable in the computation of income for tax purposes. In the present case, the defendant tax board properly included the dividends or distributions in its computations in accordance with the Safeway case. (This is in accord with the in the majority opinion that the distributions from the subsidiaries be treated as dividends.)
Appellant Factor asserts, however, that even if the “dividends” are by California, computation of the dividend deduction did not properly take into account the British income tax.
In the present case, it appears that the Franchise Tax Board determined the dividend deductions on a basis whereby “a portion of the British taxes which bears the same ratio to the total British income tax as the California net income bears to the total net income should be deducted from the California net income in order to arrive at the California earnings and profits for purposes of computing the 1953 dividend deduction.”
On that basis it was calculated that $260,141 (the net income of London apportioned to California) was 26.357 percent of $986,981 (the total net income of London). (That is $260,141 or 26.357 percent.) Then it was 986,981" calculated that 26.357 percent of the amount distributed by London to plaintiff ($301,869) was $79,563. The $79,563 was the amount of the dividend deduction allowed. It thus appears that in the numerator of the fraction (260,141) defendant included only the portion of London’s tary income that had been apportioned to the measure of California tax (in determining the amount of taxable dividend). The defendant, in so computing the taxability of dividend income, prorated the British income taxes according to the ratio which California net income from “London” (that was subject to British taxes) bore to “London’s” total income that was subject to British taxes. In computing the dividend deduction, the defendant, pursuant to section 24402 of the Revenue and Taxation Code, deducted British income taxes from both the numerator and denominator of the fraction above mentioned.
Appellant argues that said percentage (26.357) should have been in the following manner: From the total net income of London ($986,981) subtract the foreign and domestic tax ($479,746) paid by “London” to Great Britain, leaving a remainder of $507,235. Then, ex*17press the percentage as the ratio of $260,141 to $507,235, or 51.286 percent. (That is $260,141 or 51.286 percent); and use that percent 507,235' (51.286) in the computations rather than 26.357 percent. Thus, appellant asserts in effect that proper allowance was not made for British income taxes in the computations, and that there was double taxation.
In the Safeway case, supra, (3 Cal.3d at pp. 749-750), it was said: “Under section 6 of the Bank and Corporation Franchise Tax Act (act) dividends received on stocks are includable in gross income. However, section 8 provides in subdivision (h) (1) that in computing net income a deduction shall be allowed for ‘Dividends received during the income year declared from income which has been included in the measure of the tax imposed by this act upon the . . . corporation declaring the . . .’ The purpose of the section 8, subdivision (h), dividend is to avoid double taxation at the corporate level of income which has already been subjected to California taxation in the hands of the dividend-declaring corporation.”
In the present case it was stipulated that in computing the dividend deductions, the Franchise Tax Board utilized a formula which the Board of Equalization adopted in Appeal of Safeway Stores, Incorporated, and used a “work sheet devised by the Franchise Tax Board known as form OD 1075 (now FTB 6875)”; and that “This Appeal of Safeway Stores is the same case as Safeway Stores, Inc. v. Franchise Tax Bd., 3 Cal.3d 745, 753-755.” The Franchise Tax Board states that the “worksheet” was on a form OD 1075 which bore an “imprint” date in 1958; in the appeal to the Board of Equalization in the Safeway case, the board noted that the Franchise Tax Board had revised its method of computing section 8, (h), deductions after said appeal had been filed; under such revision, foreign income taxes are deducted in computing total earnings and profits, and for deduction purposes a portion thereof is deducted in computing earnings and profits; form OD 1075 was adapted to conform to such revision; and the previous OD 1075 worksheet was not used in the dividend deduction herein. In any event, it appears that the amount of dividends taxable and the amount of deductions allowable were determined in accordance with the Safeway case.
In my opinion the Safeway decision is determinative of the present case, and the judgment herein should be affirmed.
A petition for a rehearing was denied December 29, 1973. Wood, P. J., was of the opinion that the petition should be granted. Respondent’s for a hearing by the Supreme Court was denied January 16, 1974. Mosk, J., and Clark, J., were of the opinion that the petition should be granted.