Looking for a California Franchise Tax Board Forms And Templates? Download it for free!

Inclusion Of Business Income Dividends In The Recipient'S Sales Factor Form - California Franchise Tax Board

STATE OF CALIFORNIA

STEVE WESTLY

Chair

FRANCHISE TAX BOARD - Legal Branch

PO Box 1720

CAROLE MIGDEN

Rancho Cordova CA 95741-1720

Member

(916) 845-3309 Fax (916) 845-3648

DONNA ARDUIN

Member

December 4, 2003

LEGAL RULING 2003- 3

SUBJECT: Inclusion of Business Income Dividends in the Recipient's Sales Factor

ISSUE

When does income-producing activity exist with respect to a business income dividend so

that the dividend is includible in the recipient's sales factor?

FACTS

Situation 1: Corporation A receives a wholly taxable dividend from Corporation B.

Assume the stock of B is a business asset in the hands of A, and the dividend is business

income, but that A and B are not members of a common combined reporting group.

Officers or employees of A are active members of the board of directors of B and

participate in the business decisions of B.

Situation 2: Corporation C receives a wholly taxable dividend from Corporation S. The

stock of S is a business asset in the hands of C, and the dividend it receives from S is

business income. However, C does not have representation on S's board nor does it

assist S with its operations in any manner. All sales between S and C are transacted in

the same manner as with any other buyer of S's or C’s products.

LAW

Revenue and Taxation Code section 25134

states that the sales factor of California's

apportionment formula is computed using a numerator consisting of sales in California

and a denominator consisting of total sales everywhere. Section 25120, subdivision (e),

defines "sales" as all gross receipts of the taxpayer except those subject to allocation by

sections 25123 through 25127. Sections 25123 through 25127 provide rules for the

allocation of various items of nonbusiness income. Section 25120, subdivision (d),

defines nonbusiness income as "all income other than business income." Therefore, the

term "sales" includes all gross receipts from activities that give rise to business income.

Regulation section 25134, subsection (a)(1), which states that "the term 'sales' means all

gross receipts derived by the taxpayer from transactions and activity in the regular course

of . . . [the taxpayer's] trade or business," is consistent.

All further section references are to the Revenue and Taxation Code, and all

references to regulations are to title 18 of the California Code of Regulations, unless

otherwise specifically noted.

Inclusion Of Business Income Dividends In The Recipient'S Sales Factor Form - California Franchise Tax Board

Related Articles

Related forms

Related Categories