Pacific Coast Shipping Co. v. Franchise Tax Board

The instant appeal is prosecuted by the Franchise Tax Board (Board) from a summary judgment rendered in favor of respondent Pacific Coast Shipping Company (PCSC).

The controversy concerns the propriety of a corporation income tax deficiency assessed by the Board against PCSC for the taxable year ending August 31, 1977. 1 At issue is whether the income of PCSC for that year is exempt from tax under section 24320 of the Revenue and Taxation Code. That section, enacted in 1969, provides as follows; “Income derived from the operation of aircraft or a ship or ships by a corporation organized under *314 the laws of a foreign country shall not be included in gross income, and shall be exempt from the taxes imposed by this part if:

With respect to the tax year in question, it was agreed by stipulation that: (1) PCSC and its wholly owned subsidiaries were organized under the laws of Liberia; (2) each corporation derived all its earnings from the operation of vessels in international commerce; (3) the vessels were documented under the laws of Liberia; and (4) units of government within Liberia, as well as the Liberian national government, did not impose any tax upon income which…