Fujitsu IT Holdings, Inc. v. Franchise Tax Board

I.

INTRODUCTION

Amdahl Corporation (Amdahl), a multinational business, sought a refund of $3,390,388 in taxes arising from assessments by the Franchise Tax Board (FTB) for the tax years 1988, 1989, 1991 and 1992. In the underlying tax refund action, Amdahl alleged that the FTB improperly assessed taxes against it for these years based on its erroneous treatment of dividends distributed by Amdahl’s first-tier and second-tier subsidiaries. Specifically, Amdahl claimed that the FTB: 1) incorrectly treated tax credit payments from Amdahl’s United Kingdom subsidiaries as nondividend income; 2) incorrectly computed the inclusion ratio used to determine how much of the income of Amdahl’s foreign subsidiaries should be included in the combined income of the “water’s-edge” group; and 3) incorrectly applied Revenue and Taxation Code sections 25106 and 24411 to dividends received from Amdahl’s foreign subsidiaries. Amdahl also alleged that the FTB erred in concluding that its tax refund action, as it relates to tax year 1988, was not timely filed. Finally, Amdahl claimed that California’s “water’s-edge” method of apportioning the combined income of a unitary business group for tax…