(a) Taxable in Another State. In General.
Under Section
25121, the taxpayer is subject to
the allocation and apportionment of its income if it has income from business
activity that is taxable both within and without this state. A taxpayer's
income from business activity is taxable without this state if such taxpayer,
by reason of such business activity (i.e., the transactions and activity
occurring in the regular course of a particular trade or business), is taxable
in another state within the meaning of Section
25122. A taxpayer is taxable
within another state if it meets either one of two tests:
(1) If by reason of business activity in
another state the taxpayer is subject to one of the types of taxes specified in
Section
25122(a), namely:
A net income tax, a franchise tax measured by net income, a franchise tax for
the privilege of doing business, or a corporate stock tax; or
(2) If by reason of such business activity
another state has jurisdiction to subject the taxpayer to a net income tax,
regardless of whether or not the state imposes such a tax on the taxpayer.
A taxpayer is not taxable in another state with respect
to a particular trade or business merely because the taxpayer conducts
activities in such other state pertaining to the production of nonbusiness
income or business activities relating to a separate trade or
business.
(b)
Taxable in Another State. When a taxpayer is "subject to" a tax under Section
25122.
(1) A taxpayer is "subject to" one of the
taxes specified in Section
25122(a) if it
carries on business activity in such state and such state imposes such tax
thereon. Any taxpayer which asserts that it is subject to one of the taxes
specified in Section
25122(a) in
another state, shall furnish to the Franchise Tax Board upon its request
evidence to support such assertion. The Franchise Tax Board may request that
such evidence include proof that the taxpayer has filed the requisite tax
return in such other state and has paid any taxes imposed under the law of such
other state; the taxpayer's failure to produce such proof may be taken into
account in determining whether the taxpayer in fact is subject to one of the
taxes specified in Section
25122(a) in such
other state.
If the taxpayer voluntarily files and pays one or more of
such taxes when not required to do so by the laws of that state or pays a
minimal fee for qualification, organization or for the privilege of doing
business in that state, but
(A) does
not actually engage in business activity in that state, or
(B) does actually engage in some business
activity, not sufficient for nexus, and the minimum tax bears no relation to
the taxpayer's business activity within such state, the taxpayer is not
"subject to" one of the taxes specified within the meaning of Section
25122(a).
EXAMPLE:
State A has a corporation franchise tax measured by net
income, for the privilege of doing business in that state. Corporation X files
a return and pays the $50 minimum tax, although it carries on no business
activity in State A. Corporation X is not "taxable" in State
A.
(2) The concept
of taxability in another state is based upon the premise that every state in
which the taxpayer is engaged in business activity may impose an income tax
even though every state does not do so. In states which do not, other types of
taxes may be imposed as a substitute for an income tax. Therefore, only those
taxes enumerated in Section
25122(a) which
may be considered as basically revenue raising rather than regulatory measures
shall be considered in determining whether the taxpayer is "subject to" one of
the taxes specified in Section
25122(a) in
another state.
EXAMPLE (A):
State A requires all nonresident corporations which
qualify or register in State A to pay to the Secretary of State an annual
license fee or tax for the privilege of doing business in the state regardless
of whether the privilege is in fact exercised. The amount paid is determined
according to the total authorized capital stock of the corporation; the rates
are progressively higher by bracketed amounts. The statute sets a minimum fee
of $50 and a maximum fee of $500. Failure to pay the tax bars a corporation
from utilizing the state courts for enforcement of its rights. State A also
imposes a corporation income tax. Nonresident Corporation X is qualified in
State A and pays the required fee to the Secretary of State but does not carry
on any business activity in State A (although it may utilize the courts of
State A). Corporation X is not "taxable" in State A.
EXAMPLE (B):
Same facts as Example (A) except that Corporation X is
subject to and pays the corporation income tax. Payment is prima facie evidence
that Corporation X is "subject to" the net income tax of State A and is
"taxable" in State A.
EXAMPLE (C):
State B requires all nonresident corporations qualified
or registered in State B to pay to the Secretary of State an annual permit fee
or tax for doing business in the state. The base of the fee or tax is the sum
of (i) outstanding capital stock, and (ii) surplus and undivided profits. The
fee or tax base attributable to State B is determined by a three factor
apportionment formula. Nonresident Corporation X which operates a plant in
State B, pays the required fee or tax to the Secretary of State. Corporation X
is "taxable" in State B.
EXAMPLE (D):
State A has a corporation franchise tax measured by net
income for the privilege of doing business in that state. Corporation X files a
return based upon its business activity in the state but the amount of computed
liability is less than the minimum tax. Corporation X pays the minimum tax.
Corporation X is subject to State A's corporation franchise
tax.
(c) Taxable
in Another State. When a State has jurisdiction to Subject a Taxpayer to a Net
Income Tax. The second test, that of Section
25122(b), applies
if the taxpayer's business activity is sufficient to give the state
jurisdiction to impose a net income tax by reason of such business activity
under the Constitution and statutes of the United States. Jurisdiction to tax
is not present where the state is prohibited from imposing the tax by reason of
the provisions of Public Law
86-272,
15 U.S.C.A. §§
381-385. In the case of any "state" as
defined in Section
25120(f), other
than a state of the United States or political subdivision of such state, the
determination of whether such "state" has jurisdiction to subject the taxpayer
to a net income tax shall be made as though the jurisdictional standards
applicable to a state of the United States applied in that "state." If
jurisdiction is otherwise present, such "state" is not considered as without
jurisdiction by reason of the provisions of a treaty between that state and the
United States.
EXAMPLE:
Corporation X is actively engaged in manufacturing farm
equipment in State A and in foreign country B. Both State A and foreign country
B impose a net income tax but foreign country B exempts corporations engaged in
manufacturing farm equipment. Corporation X is subject to the jurisdiction of
State A and foreign country B.
