Willamette Industries v. Franchise Tax Board

Opinion

REYNOSO, J. We are called upon to interpret a statute increasing a franchise tax rate in two particulars. First, when was the effective date of the change to the higher rate? Second, did the change immediately cover only “calendar” or “fiscal” years (both 12 months) or also include a shorter period, here four months? As we explain below, we conclude that the effective date predated the four-month period in question, and the statute covers a term of less than a year, as well as the ordinary fiscal and calendar years.

[530]Plaintiff Willamette Industries appeals from a judgment of the Sacramento County Superior Court entered after the court granted defendant Franchise Tax Board’s motion for summary judgment. In its complaint plaintiff sought a refund of taxes, contending that it had overpaid its franchise tax for the period September 1, 1967, through December 31, 1967. We hold that the trial court properly granted the motion for summary judgment. Thus, we affirm the judgment.

I

The facts are not in dispute. Plaintiff is an Oregon corporation and is the successor in interest to Western Kraft Corporation, formerly a wholly owned subsidiary. During the period in question Western Kraft was qualified to do business in California. It commenced doing business in California in 1959, at that time reported its income on the basis of a fiscal year which began September 1, and ended August 31.

Western Kraft applied for and was granted permission to change from a fiscal year to a calendar year basis for reporting income. The change was to be effective January 1, 1968. This change in accounting periods required Western Kraft to report income for a short period in 1967, from September 1, through December 31. Western Kraft reported its income for that short period and paid its franchise tax at the rate of 7 percent. Plaintiff contends that the effective rate of tax for the short period was 5.5 percent rather than 7 percent. It seeks a refund of $17,169.18.

II

On July 29, 1967, chapter 963 of the Statutes of 1967 was approved by the Governor and filed with the Secretary of State. This statute increased the franchise tax rate from 5.5 percent to 7 percent. Section 104 of the act amended section 23151 of the Revenue and Taxation Code to read; “With the exception of financial corporations, every corporation doing business within the limits of this state and not expressly exempted from taxation by the provisions of the Constitution of this state or by this part, shall annually pay to the state, for the privilege of exercising its corporate franchises within the state, a tax according to or measured by its net income, to be computed at the rate of 7 percent upon the basis of its net income for the next preceding income year. In any event, each such corporation shall pay annually to the state, for the said privilege, a minimum tax of one hundred dollars ($100).”