Comcast Scores Partial Win in California Tax Dispute

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Laura Mahoney

A California appellate court panel affirmed a trial court ruling that was a partial win for both Comcast and the Franchise Tax Board in a dispute about Comcast’s unitary ties with another company and its taxable business income ( ComCon Prod. Servs. I, Inc. v. Cal. Franchise Tax Bd. , Cal. Ct. App., No. B259619, unpublished 12/14/16 ).

In a 40-page unpublished opinion, the three-judge panel unanimously affirmed that Comcast lacked a unitary relationship with TV shopping network QVC Inc. in 1998 and 1999; however, a $1.5 billion termination fee the company received in 1999 for a failed merger was apportionable business income. The court issued its ruling less than two weeks after hearing oral arguments in the case.

Comcast is due a $3 million refund from the FTB on in the unitary dispute, but owes tax on the termination fee based on the court’s holding. The ruling came in cross-appeals from Comcast and the FTB on the issues they lost at the trial court level.

Representatives of the FTB and Comcast declined to comment on the ruling.

Proper Unitary Principles

“We agree with the trial court’s conclusion that Comcast and QVC were not integrated with each other and neither company was dependent on the other within the meaning of the legal standards for determining a unitary business,” the Second District Court of Appeal said.

Similarly, the court said it agreed with the trial court that the $1.5 billion termination fee, paid after a failed merger between Comcast and MediaOne, was regular business income and not an extraordinary, once-in-a-corporate-lifetime event. The company engaged in many acquisition transactions in the regular course of business, the court said.

“Payment of the $1.5 billion termination fee was a bargained-for, direct result of Comcast’s agreement to acquire MediaOne through merger,” the court said, adding that the company’s entry into the agreement that gave rise to the income.

Comcast Failed to Raise Issue

The three-judge panel also rejected claims from Comcast that the FTB must recalculate its 1999 tax liability if the termination fee is considered business income because the FTB omitted it from the denominator of its sales factor. The court said the company failed to raise the issue in its original refund claim, its original complaint to the trial court or its motion for summary judgment.

Comcast first raised the issue after the evidence phase of the trial and submitted a proposed judgment to the trial court that included the $1.5 billion termination fee in the denominator of the company’s sales factor, which would have resulted in a $3 million refund. The court adopted the FTB’s proposed judgment instead, and that judgment didn’t adjust the sales factor.

“The apportionment formula used by the board to compute Comcast’s tax liability as a unitary business with QVC following its audit simply combined the apportionment factor amounts reported on Comcast’s and QVC’s original returns,” the court said. “As a result, the board always included the termination fee in Comcast’s 1999 business income tax base but omitted it from the revised sales factor—an approach that would increase Comcast’s tax liability regardless of the outcome of the QVC unity issue. Accordingly, Comcast had reason to challenge the Board’s determination of the proper sales factor for 1999 in its original tax refund claim. Its failure to do so forfeits the issue.”

Presiding Justice Dennis M. Perluss signed the opinion, with Justice Laurie D. Zelon and Los Angeles County Superior Court Judge Virginia Keeny concurring. Keeny was assigned to the case due to a vacancy.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the opinion is at

Copyright © 2016 Tax Management Inc. All Rights Reserved.

Request Weekly State Tax Report