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California Franchise and Corporation Income Taxes (Portfolio 1910)

Product Code: TPOR44
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California Franchise and Corporation Income Taxes examines a wide range of issues dealing with the taxation of corporations in California. This Portfolio, written by Roy E. Crawford, Esq., McDermott Will & Emery, and Russell D. Uzes, Esq., PricewaterhouseCoopers LLP, analyzes the distinctions between the corporate franchise and income taxes, the types of entities exempt from tax, and the problems facing commencing, restructuring, and liquidating corporations in the state.

This Portfolio begins by examining the defining characteristics that subject a corporation to franchise and income taxes, including basic rules of each tax, the definition of “doing business,” and special applications of income tax.  California Franchise and Corporation Income Taxes also discusses factors that exempt a corporation from taxation.

California Franchise and Corporation Income Taxes then explores the computation of California taxable income and its similarities to and differences from federal taxable income. In addition, it discusses the taxation of multistate businesses and the filing of unitary returns. The taxation of special entities, such as banks and financial corporations, S corporations, and cooperatives, is also discussed.

Finally, California Franchise and Corporation Income Taxes walks readers through a detailed discussion of various tax procedures.

Working papers address interest rates on overpayments and underpayments, taxpayers’ bill of rights, and California tax assistance.  Readers will also find the complete Auto Transit Inc. v. Brady, Chairman, Mississippi Tax Commission, 430 U.S. 274 (1977) opinion.

California Franchise and Corporation Income Taxes allows you to benefit from:

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

 This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

Detailed Analysis

1910.01. INTRODUCTION

1910.02. CORPORATIONS SUBJECT TO FRANCHISE TAX

A. Basic Rule, Franchise Tax

B. Definition of “Doing Business”

1. Holding Companies

2. Foreign Lending Institutions

3. Complete Auto Transit, Inc. v. Brady

1910.03. CORPORATIONS SUBJECT TO INCOME TAX

A. Basic Rule, Corporation Income Tax

B. Special Applications of Income Tax

1910.04. CORPORATIONS EXEMPT FROM TAX

A. Specific Exemptions

B. Application for Exemption

C. Private Foundations

D. Tax on Unrelated Income

E. Information Returns

1910.05. CALIFORNIA TAX PROBLEMS OF COMMENCING CORPORATIONS

A. Preliminary Considerations

1. Minimum Franchise Tax Payment

2. S Corporations

3. 50 Percent NOL Carryforward

4. Apportionment of Income of Interstate Business

B. Franchise Tax on Commencing Corporation

C. Inactive Corporation

D. Corporation Previously Subject to Income Tax

E. Personal Income Tax of Shareholders

1910.06. DETERMINATION OF GROSS INCOME AND DEDUCTIONS

A. Comparison of Federal and California Provisions

B. Special Treatment of Certain Entities

1. S Corporations

2. Insurance Companies

3. Publicly Traded Partnerships

C. Foreign Source Income

D. Alternative Minimum Tax

E. Credits

F. Personal Holding Company

G. Gross Income

1. Basic Definition of Gross Income

2. Contributions to Capital

H. Dividend Payments

1. Payor Corporation Subject to California Tax

2. Payor and Recipient Corporation Combined

I. Deductions

1. Income Taxes

2. Net Operating Losses

3. Depreciation

4. Interest

5. Bad Debts

6. Contributions

7. Qualified Stock Options

8. Other Deductions

9. Items Expressly Not Deductible

10. Capital Gains and Losses

1910.07. CORPORATE REORGANIZATION OR SALE OF BUSINESS

A. Similarity of California and Federal Tax Treatment

B. Corporations Dissolving and Commencing in Reorganization

1910.08. CORPORATE LIQUIDATION AND TERMINATION OF BUSINESS

A. Tax Consequences of Liquidation

B. Collapsible Corporations

C. Tax Clearance Certification

D. Computation of Corporation's Final Tax

1910.09. TAXATION OF MULTISTATE BUSINESSES

A. Principal Areas of Discussion

B. Jurisdiction To Tax

1. Sufficient Nexus to Taxing State

2. “Doing Business” as Basis of Tax Jurisdiction

C. Mere Solicitation Within State (P.L. 86–272)

1. Scope of Public Law 86–272

2. California Application of P.L. 86–272

D. Apportionment and Allocation

1. Basic Concepts

a. Apportionment and Allocation

b. Separate Accounting

2. Uniform Division of Income for Tax Purposes Act (UDITPA)

3. Distinction Between Business and Nonbusiness Income

a. Pass–Through Income of a Partnership

b. Dividends

c. Gains From the Sale of Stock or a Partnership Interest

d. Interest

e. Income From the Disposition of Capital Assets

f. Allocation of Nonbusiness Income

(1) Rents and Royalties

(2) Capital Gains and Losses

(3) Interest and Dividends

(4) Royalties From Patents and Copyrights

4. Commercial Domicile

E. Unitary Business Doctrine

1. Judicial Development

a. Assignment of Income by Formula if Business Is “Unitary”

b. Developing “Unitary Business” Concept

c. “Nexus” Among Interstate Business Activities

d. “Factors of Profitability”

e. Effect on Foreign Commerce

2. Statutory and Regulatory Framework

a. California Uniform Division of Income for Tax Purposes Act

b. California UDITPA Regulations

3. Application to Multinational Corporations

a. Domestic Parent

b. Foreign Parent

c. Regulation 25106.5–3

4. Water's–Edge Election

a. Statute and Regulations

b. Domestic Disclosure Spreadsheet

5. Combined Reports by Unitary Business

a. Combined Report; Filing and Content

b. Appeal of Joyce and Appeal of Finnigan Rules

6. Apportionment by Three–Factor Formula: Property, Payroll, Sales

a. First step:

b. Second step:

c. Third step

7. Property Factor

8. Payroll Factor

9. Sales Factor

10. Combination of General and Financial Corporations

1910.10. TAXATION OF BANKS AND FINANCIAL CORPORATIONS

A. Constitutional and Statutory Framework

B. Rate of Tax on Banks and Financial Corporations

C. Apportionment of Interstate Income

D. Bad Debt Deduction

1910.11. COOPERATIVES AND SIMILAR ORGANIZATIONS

Introductory Material

A. Mutual Savings Banks

B. Building and Loan Associations; Federal Savings and Loan Associations

C. Farmers' or Fruit Growers' Cooperatives or Mutual Associations

D. Cooperatives or Mutual Associations With Income Not From Sale of Tangible Personalty

E. Cooperative Corporations With Income From Sale of Tangible Personalty

F. Real Estate Investment Trusts (REITs)

G. Real Estate Mortgage Investment Conduits (REMICs)

1910.12. S CORPORATIONS

A. General Rule, S Corporations

B. Eligibility

C. Corporate Level Tax

D. Credits

E. Other Differences

F. Nonresident Shareholders

1910.13. LIMITED LIABILITY COMPANIES

1910.14. TAX PROCEDURES

A. Filing Returns

1. Franchise Tax Ruling; Time of Filing

2. Manner of Filing

3. Election To File Combined Report

4. Estimated Tax

B. Franchise Tax Board Audits

1. Audit Procedure

2. Statute of Limitations on Assessments; Effect of Federal Adjustments

3. Protest to Franchise Tax Board

a. Form of Protest

b. Oral Hearing on Protest

C. Appeal From Franchise Tax Board Determination

1. Selection of Appeal Procedure

a. Factors Favoring Appeal to State Board of Equalization

b. Factors Opposing Appeal to State Board of Equalization

2. Appeal to State Board of Equalization

a. Filing Appeal

b. Contents of Notice of Appeal

c. Hearing Before State Board of Equalization

3. Claims and Actions for Refund

a. Claims for Refund

(1) Form of Claim

(2) Statutes of Limitation on Refund Claims

b. Actions for Refund

(1) Scope of Remedy

(2) Statutes of Limitation on Refund Actions

(3) Procedure in Action for Refund

(4) Recovery of Erroneous Refunds

4. Suit To Enjoin Collection of Tax

5. Taxpayers' Bill of Rights Act

D. Voluntary Disclosure Agreement

Working Papers

Item Description Sheet

Worksheet 1 Interest Rates on Overpayments and Underpayments

Worksheet 2 How To Get California Tax Assistance

Worksheet 3 Franchise Tax Board Return Mailing Addresses

Worksheet 4 Taxpayers' Bill of Rights

Worksheet 5 COMPLETE AUTO TRANSIT, INC. v. BRADY, CHAIRMAN, MISSISSIPPI TAX COMMISSION, 430 U.S. 274 (1977)

Opinion

Worksheet 6 BNA 2008 Survey of State Tax Departments: California Questionnaire

Bibliography

Bibliography

Roy Crawford, III
Mr. Crawford is Special Counsel for Heller, Ehrman, White and McAuliffe in San Francisco. He formerly was a partner in the San Francisco, California office of Brobeck, Phleger & Harrison. Mr. Crawford has served as the Chairman of the State and Local Tax Committee of the ABA Taxation Section, and as a special consultant to the City of New York in the area of taxation of banking institutions. Mr. Crawford is a co–author of 1910 T.M., California Franchise and Corporation Income Taxes, and 1920 T.M., California Sales and Use Taxes, and the author of “Reorganization and Sale of a Business,” which appears in California Taxation (Matthew Bender). He also sits on the editorial advisory boards of the Journal of State Taxation and the Journal of Bank Taxation. Mr. Crawford received his law degree from the University of Pennsylvania and his L.L.B. degree from Stanford University. 
Russell Uzes
Mr. Uzes is the Partner–in–Charge of the State & Local Practice in the Northwest U.S. for PricewaterhouseCoopers LLP. Before joining PricewaterhouseCoopers LLP, Mr. Uzes was a partner in the San Francisco, California office of Brobeck, Phleger & Harrison. He was the 1995– 1996 Chair of the State and Local Tax Committee for the California State Bar Association. Mr. Uzes is a co–author of 1910 T.M., California Franchise and Corporation Income Taxes, and 1920 T.M., California Sales and Use Taxes. Mr. Uzes received a B.A. in Economics from the University of California, Berkeley and a J.D. from the University of California, Los Angeles.