John McClure Estate, Inc. v. Johnson

Appellant is a domestic corporation doing business in the State of California. Appellant received dividends on stock owned by it in an insurance company doing business in California and paying the insurance tax on gross premiums imposed during the year 1937, the income year in question, by section 14 of article XIII of the California Constitution. The dividends received by appellant were paid by the insurance company in part from gross premium income and in part from investment income. Appellant contended that, in computing its net income for 1937 by which its franchise tax for 1938 was measured, all the dividends received by it from the insurance company were deductible. The Franchise Tax Commissioner, respondent here, refused to allow any of such dividends to be deducted and increased appellant’s tax accordingly. After paying the additional tax appellant instituted this action for the recovery thereof. Judgment of the trial court was for respondent and this appeal followed. The appeal, involving the legality of a tax, was taken to the Supreme Court of this state and was transferred by the Supreme Court to this court.

Appellant contends that the provision of the Bank and…