Hoechst Celanese Corp. v. Franchise Tax Board

HOECHST CELANESE CORPORATION, Plaintiff and Appellant, v. FRANCHISE TAX BOARD, Defendant and Respondent. No. C030702 (Super.Ct.No. 96AS01954) California Court of Appeal Third Appellate District (Sacramento) Filed January 3, 2000
        APPEAL from a judgment of the Superior Court of Sacramento County, William M. Gallagher, Judge. Reversed.
        Morrison & Foerster, Eric J. Coffill and Lisa R. Brenner, for Plaintiff and Appellant.
        Bill Lockyer, Attorney General, Lawrence K. Keethe, Supervising Deputy Attorney General, and George C. Spanos, Deputy Attorney General, for Defendant and Respondent.
        Paull Mines and Anne E. Miller for Multistate Tax Commission, as Amici Curiae on behalf of Defendant and Respondent.

THE COURT:
        It is ordered that the opinion filed herein on December 3, 1999, be modified in the following particulars:
        1. On page 16*, footnote 5 is deleted.
        2. On page 20**, footnote 7 is deleted.
        3. On page 21***, the first sentence of the first full paragraph is modified, and a portion of the quotation is deleted, so the sentence and quotation now read:
        The North Carolina Supreme Court provided a more complete analysis of the language of that state's identical statute in Polaroid, noting "that the phrase 'acquisition, management, and/or disposition' contemplates the indicia of owning corporate property. [Citation.]" (349 N.C. at p. 301 [507 S.E.2d at pp. 292-293].)
        4. On page 21****, at the end of the first full paragraph, the following sentence is inserted after the modified language cited above:
        Although California does not equate "integral" with "essential" for purposes of determining what constitutes a unitary business (Superior Oil Co. v. Franchise Tax Board (1963) 60 Cal.2d 406, 413-414), the Polaroid analysis properly highlights the closeness of the relationship between the asset and the corporation's business operations required under the functional test for business income.
        5. On page 21******, at the end of the first full paragraph as modified, a new paragraph is inserted which reads:
        The FTB cites the SBE decision in Kroehler in support of its argument the Celanese pension reversion is taxable as business income under the functional test. However, Kroehler's factual analysis is brief and conclusory, and the SBE's limited findings distinguish it from the case before us. In Kroehler, the taxpayer acquired all the assets of another furniture company, including interest in a pre-ERISA pension plan, to further its business of manufacturing and selling furniture. (Kroehler, supra, Cal. Tax Reports, ¶ 205-649, p. 14,897-123.) It maintained the pension plan to retain and attract employees to perform the required labor. The taxpayer liquidated the pension plan in the course of terminating the entire business operation of its Kentucky subsidiary. The taxpayer, as residuary beneficiary of the pension plan, received the fund surplus as a rebate. (Ibid.)
        6. On page 22******, line 11 of the first full paragraph, the phrase "but for the Plan beneficiaries" is deleted so the sentence reads:
        Celanese did not hold title to the assets, and in the regular course of its business, the acquisition, management, and disposition of the trust assets did not generate income for Celanese's business.
        There is no change in judgment.
        Respondent's petition for rehearing is denied.

FOR THE COURT:
        SIMS, Acting P.J.
        CALLAHAN, J.
        KOLKEY, J.

* See Daily Appellate Report of December 7, 1999, on page 12288, 1st column, last paragraph, footnote 5.

** See Daily Appellate Report of December 7, 1999, on page 12289, 1st column, last paragraph, footnote 7.

*** See Daily Appellate Report of December 7, 1999, on 12289, 1st column, 5th full paragraph, lines 3-10.

**** See Daily Appellate Report of December 7, 1999, on 12289, 1st column, after 5th full paragraph, insert sentence.

***** See Daily Appellate Report of December 7, 1999, on 12289, 1st column, sentence that would be inserted after the above 5th paragraph.

****** See Daily Appellate Report of December 7, 1999, on page 12289, column 2, 2nd full paragraph, lines 12-26.