Hugo Neu-Proler International Sales Corp. v. Franchise Tax Board

The Franchise Tax Board (Board) appeals from the judgment in favor of Hugo Neu-Proler International Sales Corporation (Hugo Neu-Proler ISC) in the corporation’s action for a refund of taxes paid. The basic question is whether there is “unity of ownership” when two corporations are equal partners in a company which owns 100 percent of a third corporation. We affirm.

The parties have stipulated to the relevant facts. Hugo Neu & Sons, Inc., is a corporation whose principal office is in New York. It is an international marketer of metals. Proler International Corporation is a corporation whose principal office is in Texas. It owns a process for cleaning scrap metal.

In 1962, Hugo Neu & Sons and Proler International formed the partnership Hugo Neu-Proler Company (Hugo Neu-Proler). Hugo Neu-Proler processed scrap metal and sold it abroad, principally to Japan. Between 1962 and 1972, Hugo Neu & Sons and Proler International each included in their respective California state income tax returns 50 percent of Hugo Neu-Proler’s net income. The resulting total net income of each corporation was then apportioned to sources inside and outside California, in accordance with the…