Andersen-Carlson Manufacturing Co. v. Franchise Tax Board

WOOD (Parker), J. In this action for a refund of taxes, defendant appeals from a judgment in favor of plaintiff.

Plaintiff corporation paid corporation taxes, under protest, for the year 1950. Plaintiff asserts that, during the first part of 1950, it sold its assets and effected a dissolution of the corporation, and therefore it is not liable for taxes except for the portion of the year prior to the dissolution. Defendant asserts that the cessation of business or corporate existence was not pursuant to a sale but was pursuant to a reorganization, consolidation or merger within the meaning of section 13 (k) (1) of the Bank and Corporation Franchise Tax Act (Stats. 1949, chap. 513, pp. 891-892; effective June 4, 1949), and therefore plaintiff is liable for taxes for the whole year.

The action was tried upon a written stipulation of facts. [826]Plaintiff, if entitled to a refund, is entitled to judgment in the sum of $4,421.13 with interest. In July, 1948, plaintiff entered into a contract with Rome Cable Corporation (referred to as “Rome”), a New York corporation qualified to do business in California. Prior to execution of the contract the stockholders of plaintiff corporation authorized its officers to execute the contract, and the commissioner of corporations issued a permit authorizing execution of the contract.

The contract, a copy of which is attached to the stipulation, recited in substance: that Rome had made a loan of $25,000 to plaintiff and agreed to advance an additional sum of $175,000 to plaintiff; when $200,000 had been advanced, plaintiff would execute its promissory note for that amount to be paid April 15, 1950; plaintiff made certain representations regarding the status of plaintiff as a California corporation, its financial condition, and title to its properties; the contract was made upon certain conditions, including ratification by the board of directors and the stockholders of plaintiff, approval by the commissioner of corporations, and an audit of the books of plaintiff; plaintiff gave Rome an option to purchase all the assets of plaintiff on or before January 15, 1950, except the sum of $2,500 (which would be retained to pay expenses of dissolution); the purchase price would be the agreement by Rome to assume and pay all liabilities of plaintiff appearing on its books, and to issue and deliver to plaintiff a certain number of shares of stock of Rome; the number of shares to be delivered by Rome would be 25,000 if the book value of plaintiff’s stock, as of the date of exercise of the option, did not exceed $10 per share—but if plaintiff had a satisfactory earning capacity prior to March 31, 1949, and the option had not been exercised before that date, the number of shares would be 27,500; if the book value of plaintiff’s stock, as of the date of the exercise of the option, exceeded $10 per share, then the number of shares of Rome stock would be determined by the ratio between the then respective book values of the stock of Rome and of plaintiff as set forth in a table in the contract; plaintiff had the right after January 3, 1949, to repay said amounts with interest; Rome had the right, within 100 days after it received notice from plaintiff of its intention to repay the loan, to exercise the option to purchase the assets of plaintiffs; plaintiff agreed that so long as any portion of the loan was unpaid, it would furnish Rome with monthly balance sheets and operating statements, and it would permit Rome’s representatives to inspect its properties and books.