Willamette Industries, Inc. v. Franchise Tax Board

This is an action for a refund of California corporation franchise taxes paid by Willamette Industries, Inc., an Oregon corporation, for income year 1977. The question before this court concerns the proper tax treatment of dividends paid to Willamette by two subsidiary corporations.

Facts

The facts are undisputed. Plaintiff Willamette Industries, Inc., manufactures and distributes a variety of wood and paper products. Its principal place of business is in Oregon, but it does business in California and, hence, is subject to California franchise taxes.

Until 1977, Willamette owned 50 percent of Brooks-Willamette, an Oregon corporation which was also engaged in the paper products business. Brooks-Willamette, in turn, owned 100 percent of Mobol Products, Inc., also an Oregon corporation. Although the operations of Brooks-Willamette and Mobol were fully integrated with the operations of Willamette, neither Brooks-Willamette nor Mobol did business in California, and neither was subject to California tax.

In June 1977, Willamette acquired the remaining 50 percent of Brooks-Willamette and changed the subsidiary’s name to Bend-Willamette. (Hereafter, that subsidiary will be…