Bay Cities Transportation Co. v. Johnson

THE COURT.

This suit was brought to recover corporation franchise taxes claimed to have been illegally levied and collected. The sole question presented is whether corporations whose common parent is a foreign corporation not li

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censed to do business in this state constitute an affiliated group within the meaning of the Bank and Corporation Franchise Tax Act. (Stats. 1929, p. 19; Peering’s Gen. Laws, 1931 ed., Act 8488.)

The complaint alleges that Lawrence Warehouse Corporation during the taxable period in question was a foreign corporation, engaged solely as a holding company owning and holding all of the voting shares of the plaintiff Bay Cities Transportation Company and three other corporations, all of which were doing business in California. In a second cause of action it is alleged that Transamerica Corporation is a foreign corporation; that it is a holding company engaged exclusively in owning and holding stocks of various corporations and that during the same taxable period it held directly, or through ownership of all of the stock of Transamerica Bank Holding Company, in excess of 95% of the voting stock of a large number of corporations, including plaintiff Corporation of America. Almost all of these subsidiaries, it is alleged, were doing business in California during the year 1932.

According to the complaint, each of the plaintiffs filed a consolidated return of corporation franchise taxes for the members of the group with which each was affiliated. Bir this means the losses of some of the members of the consolidated group were materially offset by the profits of others, resulting in a substantial reduction in the amount of the tax. These returns were not accepted by the franchise tax commissioner. He made an additional assessment of a deficiency upon each return which each of the plaintiffs paid under protest. Plaintiffs seek to recover the amounts so paid.

There is no dispute concerning the facts. By his answer the State Treasurer expressly admits the allegations of the complaint, but he alleges that the corporations claimed by each of the returns to be members of an affiliated group did not comprise such a group within the meaning of the applicable tax act and that they did not have the privilege of making a consolidated return in lieu of separate returns. Upon the issues thus tendered the plaintiffs moved for judgment on the pleadings. The motion was granted and the appeal is from the judgment which followed this ruling.