- 22 -
Before the 1972 amendment, California franchise tax for the
income year generally accrued on the first day of the taxable
year. Charles Schwab Corp. & Includable Subs. v. Commissioner,
107 T.C. at 297. Although the pre-1972 California franchise tax
was measured by the preceding year’s net income, it has been held
that it did not accrue until the taxable (or next) year. Central
Inv. Corp. v. Commissioner, supra at 132-133.
In Schwab I the Court explained that the 1972 amendments
were enacted to cause dissolving or withdrawing corporations to
be covered by the franchise tax.10 In effect, however, the 1972
amendments changed the accrual date for all California franchise
taxpayers from January 1 of the taxable year to December 31 of
the income year (preceding year).
The above-described rules addressing the franchise tax
liability for a corporation’s first year (but less than a full
year) of operation are the rules that this Court addressed in
Schwab I. Because petitioner’s second year11 franchise tax was
based on the second year’s net income under pre-1972 California
law, the assessment or accrual, in effect, occurred on December
10 The problem appears to be that a corporation that was
dissolved or terminated before the Jan. 1 assessment date could
avoid paying the franchise tax for its final year. To remedy
this problem, the assessment date was moved back to Dec. 31 of
the income year (measuring year).
11 The second year for California franchise tax purposes is
petitioner’s first complete year of activity in California
(1988).
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011