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23042(a) (West 2004). In that regard, petitioner did business in
California and was obligated for and paid franchise taxes for all
periods under consideration. Clearly, section 461(d) was not
intended to deny a taxpayer a deduction for any period in which
it was obligated for and paid a deductible State tax.
Because we have held that section 461(d) was triggered by
the 1972 law, it follows that taxpayers would not be entitled to
accelerate the franchise tax accrual by treating the taxable year
and the measuring year as one and the same. It also follows that
the year of the imposition of the tax remains the same (in this
case 1989) and the amount of tax is based on the preceding or
measuring year (in this case 1988).
Accordingly, we agree that respondent’s trial and briefing
position that petitioner was not entitled to $932,979 for 1989
was in error. The allowance of a $932,979 deduction for the
short year 1988 by this Court in Schwab I did not preclude a
deduction for 1989 Federal income tax purposes in that same
amount.
Upon reflection and considering the parties’ positions, we
hold that petitioner is entitled to a $932,979 California
franchise tax deduction for its 1989 Federal tax year. To the
extent that our Opinion in Schwab II holds otherwise, it is
superseded.
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