Modification: Bunzl Distribution v. Franchise Tax Bd.

BUNZL DISTRIBUTION USA, INC.,

Plaintiff and Appellant,

v.

FRANCHISE TAX BOARD,

Defendant and Respondent.

No. A137887

(City & County of San Francisco

Super. Ct. No. CGC-10-506344)

California Courts of Appeal

First Appellate District

Division Three

Filed Oct. 24, 2018

ORDER MODIFYING OPINION;

NO CHANGE IN JUDGMENT

THE COURT:

It is ordered that the opinion filed herein on September 28, 2018, be modified as follows:

1.        On page 1, the second sentence of the first paragraph, "Bunzl contends the judgment must be reversed because the FTB should have excluded income from Bunzl's LLC's in calculating its California tax liability under UDITPA," is modified to read as follows:

Bunzl contends the judgment must be reversed because the FTB should have excluded property, payroll, and sales factors from Bunzl's LLC's in calculating its California tax liability under UDITPA.

2.        On page 6, the second and third sentences of the first full paragraph, beginning "In doing so, Bunzl excluded the income of its single member LLC's" and ending "thereby reducing the amount of Bunzl's income that was apportionable to California," are modified to read as follows:

In doing so, Bunzl excluded the property, payroll, and sales factors of its single member LLC's from the numerator of the apportionment formula on the basis that it had already paid California a tax and fee for those LLC's under section 18633.5. Excluding the property, payroll, and sales factors of the six single member LLC's from the numerator of the apportionment formula drastically decreased the overall apportionment ratio, thereby reducing the amount of Bunzl's income that was apportionable to California.

3.        On page 6, the first and second sentences of the last full paragraph, beginning "The FTB rejected Bunzl's approach" and ending "boosted Bunzl's California income tax liability under UDITPA to slightly more than $1.4 million," are modified to read as follows:

The FTB rejected Bunzl's approach and found that the property, payroll, and sales factors of the six single member LLC's should have been included in the numerator of the UDITPA apportionment formula. Including the property, payroll, and sales factors of the six LLC's in the numerator of the apportionment formula boosted Bunzl's California income tax liability under UDITPA to slightly more than $1.4 million.

4.        On page 7, the second sentence of the second full paragraph, beginning "Bunzl's argument appears to be twofold" and ending "could be included in the apportionment formula," is modified to read as follows:

Bunzl's argument appears to be twofold: (1) because its LLC's paid the requisite fees and taxes under section 18633.5, the LLC's property, payroll, and sales factors should have been excluded from UDITPA's apportionment formula; and (2) because the owners of the LLC's did not do any business in California apart from the LLC's, they had no property, payroll, and sales factors attributable to California that could be included in the apportionment formula.

5.        On page 7, the first sentence of the third full paragraph, "Bunzl first argues that section 18633.5 constitutes an 'alternative' taxation scheme that allows an otherwise disregarded single member LLC to be taxed for all purposes as a separate, stand-alone entity, so that its income is removed from the apportionment formula of UDITPA, even if it is part of a unitary business," is modified to read as follows:

Bunzl first argues that section 18633.5 constitutes an "alternative" taxation scheme that allows an otherwise disregarded single member LLC to be taxed for all purposes as a separate, stand-alone entity, so that the LLC's property, payroll, and sales factors are removed from the apportionment formula of UDITPA, even if it is part of a unitary business.

There is no change in the judgment.

Dated: October 24, 2018

Jenkins, J.

Acting P. J.

A137887/Bunzl Distribution USA, Inc. v. Franchise Tax Bd.

Trial Court: San Francisco Superior Court

Trial Judge: Marla J. Miller

Counsel: Reeder Wilson LLP, Kimberley M. Reeder and Margaret C. Wilson; Law Office of Kimberley M. Reeder and Kimberley M. Reeder; Morgan Lewis & Bockius LLP, Thomas M. Peterson and William B. Clayton for Appellant.

Silverstein & Pomerantz LLP, Amy L. Silverstein and Edwin P. Antolin for California Taxpayers Association, as Amicus Curiae on behalf of Appellant.

Kamala D. Harris and Xavier Becerra, Attorneys General, Paul D. Gifford, Senior Assistant Attorney General, Joyce E. Hee, Supervising Deputy Attorney General, and Karen W. Yiu, Deputy Attorney General, for Respondent.