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Tenneco W. v. Franchise Tax Bd.

Court of Appeal of California, Fourth Appellate District, Division One

October 8, 1991

No. D012857


 [*1516]  [**355]   Plaintiff Tenneco West, Inc. 1 appeals the portion of a judgment after court trial favoring defendant Franchise Tax [***2]  Board of the State of California (the Board) on Tenneco's complaint for refund of franchise taxes paid. Tenneco contends the court should have found Tenneco and certain of its subsidiaries (the Tenneco Excluded Subsidiaries) constituted a single unitary business for franchise tax purposes.

 [**356]  The Board appeals the portion of the judgment favoring Tenneco. The Board contends the court should have apportioned the tax on Tenneco's installment sale gains on the basis of factors existing in the year of sale rather than in the year of receipt of each installment payment.

 [*1517]  We affirm the portion of the judgment favoring the Board on the unitary business issue. We reverse the portion of the judgment favoring Tenneco on the installment sale issue.

Tenneco's Appeal

Factual [***3]  and Procedural Background

For the years 1973 through 1976 (the years in issue) Tenneco's subsidiaries filed returns and paid tax under California's Bank and Corporation Tax Law.

In 1979 Tenneco filed amended returns and claims for refunds for the years in issue, asserting Tenneco and its subsidiaries were engaged in a single unitary business.

The Board audited Tenneco and its subsidiaries for the years in issue. After an administrative proceeding the Board permitted Tenneco to treat its subsidiaries in oil and oil related businesses (including land, gas, pipeline, agricultural and chemical activities) as being engaged in a single unitary business with each other during the years in issue (the Tenneco Unitary Group). The Board determined the Tenneco Excluded Subsidiaries -- engaged in shipbuilding, packaging, automotive parts manufacturing, and manufacturing and selling construction and farm equipment -- were not functionally integrated with the Tenneco Unitary Group and should be treated as separate businesses for tax purposes. 2

 [***4]  [*1518]   B

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234 Cal. App. 3d 1510 *; 286 Cal. Rptr. 354 **; 1991 Cal. App. LEXIS 1166 ***; 91 Cal. Daily Op. Service 8183; 91 Daily Journal DAR 12411

TENNECO WEST, INC., Plaintiff and Appellant, v. FRANCHISE TAX BOARD, Defendant and Appellant

Subsequent History:  [***1]  A petition for a rehearing was denied November 4, 1991, and the petition of appellant Tenneco West, Inc., for review by the Supreme Court was denied January 30, 1992.

Prior History: Superior Court of San Diego County, No. 591537, Benjamin W. Hamrick, Judge.

Disposition: The portion of the judgment favoring plaintiff Tenneco West, Inc., on the second cause of action is reversed. The superior court is directed to enter judgment favoring the Franchise Tax Board on the second cause of action. The remainder of the judgment is affirmed. The Franchise Tax Board shall have costs on appeal.


Subsidiaries, factors, unitary business, unitary, centralized, apportionment, installment sale, franchise tax, trial court, financing, intercompany, Franchise, legal ruling, apportioned, taxpayer, manual, trips, integration, taxation, accounting, favoring, Packaging, planning, formula, unity, advertising, installment, regulations, employees, contends

Business & Corporate Law, Corporate Finance, Franchise Tax, Computation, Tax Law, State & Local Taxes, Franchise Taxes, General Overview, Imposition of Tax, Administrative Law, Judicial Review, Standards of Review, De Novo Standard of Review, Civil Procedure, Appeals, Administration & Procedure