John Deere Co. v. Franchise Tax Board

DRAPER, P. J. Additional franchise taxes were assessed to plaintiff for the income years October 31, 1946, through October 31, 1951, and were paid under protest. Plaintiff seeks to recover $68,679.88 of the amount so paid, asserting it to be chargeable only to a sibling corporation. Judgment was for defendant, and plaintiff appeals.

Plaintiff (Moline) and John Deere Killefer Company (Killefer) do business in California. They are but two of a large number of corporations wholly owned by Deere and Company. The parent corporation, through its many subsidiaries, operates nationwide. The California franchise tax liability of this group was the subject of earlier litigation by plaintiff, under its then corporate name. In 1951, the Supreme Court denied recovery of taxes paid under protest for the income year 1937 (John Deere Plow Co. v. Franchise Tax Board, 38 Cal.2d 214 [238 P.2d 569], app. dism. 343 U.S. 939 [72 S.Ct. 1036, 96 L.Ed. 1345]). The operations of parent and subsidiaries were held to constitute a unitary business, with income attributable to California for franchise tax purposes being determined by allocation under formula.

Respondent then commenced recomputation of taxes on account of the California operations of the group for the income years from 1938 through 1951. Extended negotiation between the tax board and the group to be charged followed. Many letters and masses of data and computations were exchanged, and a number of personal conferences were held. Moline and Killefer, as the two subsidiaries directly doing business in California, were the nominal taxpayers, but all negotiations were carried on for them by the parent corporation, which in fact paid under protest the funds here sought to be recovered.

By letter of December 1, 1953, more than 11 months before issuance of notices of assessment, defendant advised the parent company that the assessments would be levied against plaintiff Moline alone unless “you would prefer” allocation between the California corporations. There is testimony that this is the hoard’s established administrative procedure in its dealings with unitary operations. Throughout the extensive oral and written discussions thereafter, the Deere group made no suggestion that it desired allocation of the taxes, even though the board’s letter of November 5, 1954, had again stated its intention to assess all to Moline.

On November 12, 1954, respondent wrote to the parent company that it was that day issuing notices of additional assessments for the years November 1, 1937, to October 31, [665195]