Brown Group Retail, Inc. v. Franchise Tax Board

The Franchise Tax Board of the State of California (FTB) appeals from a judgment entered against it and in favor of Brown Group Retail, Inc., successor by merger to Wetherby-Kayser Shoe Company, a Missouri corporation (Brown), awarding Brown a refund of franchise taxes paid for tax years ending in 1976 through 1981.

The FTB’s appeal deals primarily with the trial court’s determination that Brown was immune from California franchise taxes pursuant to title 15, United States Code section 381 , also known as Public Law No. 86-272 (section 381). The FTB contends that this finding was error. As a fallback position, FTB argues Brown is part of a unitary group doing business in California and the trial court erred by determining that California payroll and sales attributed to Brown should not be included within the numerator of the tax formula to decide the amount of tax owed by the unitary group.

We conclude that the trial court did err in finding that Brown was immune from franchise tax payments by reason of section 381. Therefore, we need not address the FTB’s second argument.

Statement of the Case

Through a series of mergers, respondent Brown, a Missouri corporation, is…