- 24 -
California franchise tax was measured by the preceding year’s
income, accrual basis taxpayers could accrue the tax only during
the taxable year. Under pre-1972 law, withdrawal or dissolution
relieved the taxpayer from taxation for the period of the taxable
year during which the corporate franchise was not exercised. The
tax was essentially a tax on the privilege of doing business in
the taxable year. Id. at 133. All events fixing a corporation's
liability for the California franchise tax did not occur until
the taxable year in which it exercised its privilege. Epoch Food
Serv., Inc. v. Commissioner, 72 T.C. 1051, 1053 (1979).
In 1972, California amended its franchise tax law so that
withdrawal or dissolution would no longer relieve a taxpayer from
tax based on the preceding year's income. In Epoch Food Serv.,
Inc. v. Commissioner, supra at 1054, we found that the effect of
this amendment was to change the accrual date for the tax from
January 1 of the taxable year to December 31 of the income year.
Thus, after the 1972 amendment, the event fixing the liability
for the California franchise tax is the earning of net income in
the income year, rather than the exercising of the corporate
franchise in the taxable year. Id.
Section 164(a) permits a deduction for State taxes during
the taxable year in which paid or accrued. However, section
461(d) overrides the normal rules for accruing taxes in certain
situations. Section 461(d)(1) provides:
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011