A. M. Castle & Co. v. Franchise Tax Board

A. M. Castle & Co. (Castle) appeals after the trial court denied its claim for a refund of corporate franchise taxes for the tax years 1975 through 1978. The court concluded Castle was unitary with its wholly owned subsidiary, Hy-Alloy Steels Co. (Hy-Alloy), and found that California could therefore include Hy-Alloy’s income in its tax calculation, even though Hy-Alloy did not directly do business in California. We affirm.

I. Facts

California imposes a franchise tax on corporations doing business within this state. The tax depends on the corporation’s net income attributable to in-state sources. (Rev. & Tax. Code, §§ 23151, 25101.) When a corporation doing business in this state has a wholly owned subsidiary operating outside the state, the Franchise Tax Board (Board) must determine whether the subsidiary is “unitary with” the business operating in this state. If it is, the Board combines the income from the out-of-state subsidiary with the income from the corporation doing business in this state and, based on an objective formula, taxes that portion of the total income which is attributable to this state. (See Tenneco West, Inc. v. Franchise Tax Bd. (1991) 234…