MyFTB accountLegal Ruling 1959-234
California Franchise Tax Board
Legal Ruling No. 234
October 27, 1959
Allocation: Apportionment of the California Income of a Unitary Business.
The California income of a unitary business must be divided among corporations having activities in this state, by assigning it to each corporation in accordance with the average ratio that the California factors of each such corporation bear to the total factors of the group.
The relative factor method of separating the income of a unitary business between the corporations, having activities in this state, approved by the State Board of Equalization in the Appeal of Kaiser-Frazer Sales Corporation, November 7, 1958, is revised as illustrated below.
Assume that the unitary income of a group of corporations is $1,000,000 and it does 13⅓% of its business in California. The total factors and California factors of each member are as follows:
| A | B | C | Total | |
|---|---|---|---|---|
| Property | 500,000 | 64,000 | 36,000 | 600,000 |
| Payroll | 300,000 | 74,000 | 26,000 | 400,000 |
| Sales | 4,000,000 | 600,000 | 400,000 | 5,000,000 |
| A | B | C | Total | |
|---|---|---|---|---|
| Property | 24,000 | - | 36,000 | 60,000 |
| Payroll | 14,000 | - | 26,000 | 40,000 |
| Sales | 150,000 | 450,000 | 400,000 | 1,000,000 |
Under the new method of computation, this result would follow:
| A | B | C | Total | |
|---|---|---|---|---|
| Payroll | 4% | - | 6% | 10% |
| Property | 3.5 | - | 6.5 | 10% |
| Sales | 3.0 | 9 | 8 | 20% |
| Total | 10.5% | 9% | 9% | 40% |
| Average | 3.5% | 3% | 3% | 13 1/3% |
Applied to income of $133,333.
| A | 3.5% X $1,000,000 | = | 35,000 |
|---|---|---|---|
| B | 3% X $1,000,000 | = | 30,000 |
| C | 6.83 1/3% X $1,000,000 | = | 68,333 |
| Total | = | $133,333 |
This method appears to produce a more accurate result than the relative factor method. If two or more corporations contribute to the earnings of the California income, the relative contributions of each is measured by the relationship of their California factors to the total factors of the group, rather than the ratio that the California factors bear to each other.