Apple, Inc. v. Franchise Tax Board

Apple, Inc. (Apple), is one of the world’s largest multinational corporations. 1 It is incorporated in California and has its principal place of business in this state, but operates worldwide as the parent of a number of wholly owned foreign subsidiary corporations. Apple and its subsidiaries design, manufacture, and market personal computers, portable digital music players, and mobile communication devices and sell a variety of related software, services, peripherals, and networking solutions.

At issue in this tax refund action is the California tax treatment of repatriated dividends paid to Apple from certain of its subsidiaries in its 1989 tax year. More specifically, the issue is the appropriate method to account for the source from which repatriated dividends are paid, and which of two competing methods is more consistent with the provisions of our tax code that seek to ensure that foreign subsidiary income is appropriately taxed—but *7 only once. Also in dispute is an interest deduction taken by Apple in its 1989 tax year, but disallowed by California’s Franchise Tax Board (FTB).

Apple argued that FTB improperly subjected it to double taxation when it applied a…