Industrial Asphalt, Inc. v. State Board of Equalization

Facts

The facts were stipulated, but a very brief summation establishes that Industrial and Huntmix were (and are) California corporations doing business in asphalt-related endeavors. They formed a joint venture partnership (referred to hereinafter as Venture) to do the same type of business.

Industrial contributed assets of $46,307,000 to Venture, which assumed liabilities of $10,342,000. Thus, a net value of the assets from Industrial was $35,965,000. Huntmix contributed assets of $21,328,000 to Venture which assumed liabilities of $3,806,000 for a net contribution of $17,522,000. The assets contributed constituted substantially all of the assets of each corporation.

Venture distributed to Industrial cash in the amount of $30,965,000 and to Huntmix $12,522,000, thus making each partner an equal member of Venture to the amount of $5 million.

The cash was obtained by Venture through a bank loan. Both corporations remained jointly and severally liable for the state liabilities to which Venture was also liable. The debts were, after the effective establishment of Venture, guaranteed by the corporations, though Venture was primarily liable.

The Tax Board considered the…