The Charles Schwab Corporation and Subsidiaries - Page 22

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               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).                                                                     





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