The Office of Tax Appeals released 66 opinions this month, including four precedential opinions – one establishing a pro-taxpayer precedent regarding whether a corporation’s commercial domicile shifted to California upon the death of its out-of-state director (the Appeal of McDonell Lane Inc.).
While the amount in dispute was just $800 plus $486 in penalties, the FTB mounted a full-scale defense of its position that the corporation was “doing business” in this state and thus owed California tax based on the use of a California mailing address by the corporation’s surviving officers, identified as the Shambergs.
The OTA rejected the FTB’s position, ruling that the appellant’s use of a California mailing address after the death of an officer in Alaska did not rise to the level of “doing business” here.
“Appellant here took no active steps in California for financial or pecuniary gain or profit,” the OTA wrote. “Appellant used a California ‘care of’ address, not for financial or pecuniary gain or profit, but for administrative purposes. The reimbursement of the expenses by the Shambergs, such as for the P.O. Box, did not facilitate any income-producing activity, as such tasks were completed to maintain basic corporate administrative functions. And appellant’s virtual meetings in 2020 pertained to estate matters and internal recordkeeping, not decisions affecting appellant’s Alaska-based transactions. Contrary to FTB’s contentions, mere maintenance of corporate existence does not mean active engagement in a transaction for financial or pecuniary gain or profit. And while FTB points to the signing of the 2020 tax return by R. Shamberg as evidence that appellant was doing business in California, the tax return was completed and signed in 2021, the year subsequent to the one at issue. Therefore, there was no action taken by appellant in California as to the Alaska-based transactions, and any activities that occurred in California do not rise to the level of engaging in a transaction for financial or pecuniary gain or profit. Accordingly, appellant was not doing business in California in 2020 under R&TC section 23101(a).”
The OTA also rejected the FTB’s petition for a rehearing, ruling that the FTB “provides the same or similar arguments that were considered and rejected in the [original] Opinion, and which OTA continues to find to be unpersuasive.”