Filoli, Inc. v. Johnson

SHENK, J.

The plaintiff appeals from a judgment for the defendant in an action to recover a portion of the franchise tax assessed against the plaintiff for the year 1931 and paid under protest.

The plaintiff was incorporated under the laws of California and commenced to do business on July 1, 1930. At the time of its incorporation it paid the minimum tax of $25 required by the Bank and. Corporation Franchise Tax Act (Stats. 1929, p. 19, as amended), for the privilege of exercising its franchise in the year 1930. The plaintiff’s fiscal year is the calendar year. In compliance with section 13 of the act the plaintiff filed its return at the close of the year 1930 showing its net income for the period July 1-Deeember 31, 1930. The return disclosed a franchise tax due for the taxable year 1930, computed at four per cent of net income for the stated period less allowable offsets, of $1527.27. The plaintiff paid this amount less the $25 minimum theretofore prepaid. At the same time the plaintiff made an identical return showing its net income for the same period and the net tax due of $1527.27, as a basis for computing and imposing its franchise tax for the year 1931, which sum it also paid. In August, 1931, the franchise tax commissioner assessed against the plaintiff an additional tax of $8,017.66 for the year 1931. It is this additional

[664]

tax, together with added penalties and interest, which is sought to be recovered. The plaintiff has abandoned its protest and asserted cause of action as to $696.60 of said amount, which was the proportion of the tax measured by the percentage of income from tax exempt bonds. The decision in the case of

Pacific Co., Ltd.,

v.

Johnson,

285 U. S. 480 [52 Sup. Ct. 424, 76 L. Ed. 893], filed since this action was commenced, holds adversely to the plaintiff’s grounds of protest as to that amount. It sought recovery for the balance of the additional tax on the theory that there was no lawful basis for imposing such tax. .

The power of the legislature to impose the franchise tax here involved was derived from section 16 of article XIII of the Constitution adopted on November 6, 1928. Subdivision 2 of that section provided: “(a) All financial, mercantile, manufacturing and business corporations doing business within the limits of this State, subject to be taxed pursuant to subdivision (d) of section 14 of this article, in lieu of the tax thereby provided for, shall annually pay to the State for the privilege of exercising their corporate franchises within this State a tax according to or measured by their net income. The amount of such State tax shall be equivalent to four per cent of their net income. Such tax shall be subject to offset, in a manner to be prescribed by law, in the amount of personal property taxes paid by such corporations to the State or political subdivisions thereof, but the offset shall not exceed ninety per cent of such State tax. In any event, each such corporation shall pay an annual minimum tax to the State, not subject to offset, of twenty-five dollars, (b) The Legislature, two-thirds of all the members elected to each of the two Houses voting in favor thereof, may provide by law for the taxation by any other method authorized in this Constitution of the corporations, or the franchises, subject to be taxed pursuant to subdivision (a) of paragraph 2 of this section or subdivision (d) of section 14 of this article.”