Pacific Western Oil Corp. v. Franchise Tax Bd.
| Decision Date | 08 November 1955 |
| Citation | 136 Cal.App.2d 794,289 P.2d 287 |
| Court | California Court of Appeals Court of Appeals |
| Parties | PACIFIC WESTERN OIL CORPORATION, a corporation, Successor in Interest to George F. Getty, Inc., Plaintiff and Appellant, v. FRANCHISE TAX BOARD, State of California, Defendant and Respondent. Civ. 8521. |
Musick, Peeler & Garrett, Joseph D. Peeler, John P. Pollock, Los Angeles, for appellant.
Edmund G. Brown, Atty. Gen., James E. Sabine, Asst. Atty. Gen., Irving H. Perluss, Asst. Atty. Gen., Ernest P. Goodman, Deputy Atty. Gen., for respondent.
This is an appeal from a judgment in favor of defendant Franchise Tax Board in an action brought to recover franchise taxes paid by plaintiff under protest. The franchise taxes so paid are attributed to George F. Getty, Inc., a Delaware corporation, hereinafter generally referred to as the taxpayer. Appellant, Pacific Western Oil Corporation, another Delaware corporation, is the successor in interest to the taxpayer.
The taxes relate solely to income received by the taxpayer and a predecessor corporation, Getty, Inc., at their offices in Jersey City, New Jersey, from intangible assets (stocks, bonds and notes) located outside of California. The controversy centers around the propriety of including, in the measure of the franchise tax imposed by California, income received by the taxpayer, George F. Getty, Inc., and its predecessor, Getty, Inc., from these various intangible assets. The income was included in the measure of the franchise tax because, according to the commissioner's contentions, the commercial domicile of the taxpayer and of Getty, Inc., was in the State of California and the security holdings of these corporations were related to and useful in the business activities carried on by them in this state. The issues presented by the appeal relate primarily to the location of the commercial domicile of the taxpayer and of Getty, Inc., and the relationship of their security holdings to their operations in the production and sale of petroleum.
The appellant, Pacific Western Oil Corporation, is a Delaware corporation which on May 31, 1946, succeeded by merger to the assets and liabilities of George F. Getty, Inc., the taxpayer. George F. Getty, Inc., was formed under the laws of the State of Delaware on December 30, 1936. This corporation succeeded under an agreement of consolidation to the assets and liabilities of three corporations, namely: George F. Getty, Incorporated, a California corporation; George F. Getty Oil Company, a Delaware corporation; and George F. Getty Petroleum Corporation, a Delaware corporation. On August 31, 1937, George F. Getty, Inc., also succeeded by merger to the assets and liabilities of Getty, Inc., a Delaware corporation.
For many years prior to June of 1936, all the meetings of stockholders and directors of the corporations which were parties to the consolidation were held in California. Between the latter part of June, 1936 and the date of consolidation, meetings of stockholders and directors of George F. Getty Oil Company and George F. Getty Petroleum Corporation were held in the State of New Jersey. In the case of George F. Getty, Incorporated, such meetings were held in California until the date of consolidation on December 30, 1936. In the case of Getty, Inc., the meetings of shareholders and directors were held in California during the period March 1, 1934, through June 4, 1936. After June 26, 1936, to the date of the merger on August 31, 1937, the meetings of stockholders and directors of Getty, Inc., were held in New Jersey. The meetings of the directors and stockholders of taxpayer, George F. Getty, Inc., were held in New Jersey during the period here in controversy.
In the period between January 1, 1936, and June of 1936, Mr. Emil Kluth, who resided in California, was president of Getty, Inc., and of the three corporations which were consolidated to form George F. Getty, Inc. During June of 1936, Mr. Kluth was succeeded as president of all of the companies, except George F. Getty, Incorporated, by Mr. Harold Rowland who resided in New Jersey. Mr. Kluth remained president of George F. Getty, Incorporated, until the date of the consolidation in December of 1936.
The source of the intangible income here involved was primarily dividends on stock held by George F. Getty, Inc., and Getty, Inc., in various oil companies. In addition, a portion of the income was received as a result of sales of Tide Water Associated Oil Company stock and Pacific Western Oil Corporation stock and from the sale of Pacific Western notes. Finally, a portion of the income consisted of interest on Pacific Western Oil Corporation notes and interest on German bonds. The income from intangibles for the period 1937 through 1939 was as follows:
Dividends ...................... $2,061,332.50
Interest .......................... 327,911.26
Profit on sales of stocks and
notes ........................... 351,078.11
-------------
Making a total of .............. $2,740,321.87
The dividends were received primarily from Tide Water Associated Oil Company and Pacific Western Oil Corporation. Additional dividends were received from Minnehoma Oil & Gas Company and Richfield Oil Corporation.
On December 31, 1939, George F. Getty, Inc., held 372,454 shares of Tide Water Associated Oil Company stock. All the shares of Tide Water Associated Oil Company stock held by George F. Getty, Inc., were received at the time of its formation from its predecessor corporation, George F. Getty, Incorporated, or from Getty, Inc., at the time of its merger with the taxpayer on August 31, 1937. Neither the taxpayer, George F. Getty, Inc., nor Getty, Inc., purchased any shares of Tide Water Associated Oil Company stock in the years 1937, 1938 and 1939. No shares of Tide Water Associated Oil Company stock had been purchased by George F. Getty, Incorporated, after January 1, 1934. Getty, Inc., had not acquired any shares of Tide Water stock after June 25, 1935. On December 31, 1939, George F. Getty, Inc., held 679,019 shares of Pacific Western Oil Corporation stock. Of these shares, approximately 6,200 were purchased by George F. Getty, Inc., in the period June 7, 1939 to August 31, 1939. All of the remainder of the Pacific Western stock was acquired by George F. Getty, Inc., from George F. Getty Oil Company upon the consolidation on December 30, 1936, or from Getty, Inc., upon the merger of August 31, 1937, or from Minnehoma Oil & Gas Company on its liquidation in December of 1938. None of the shares received from George F. Getty Oil Company, Getty, Inc., or Minnehoma Oil Company had been purchased by any of these corporations after March 20, 1935. George F. Getty, Incorporated, a predecessor corporation, had acquired 643,664 shares of stock of Minnehoma Oil Company in February of 1933 and 2,270 shares of Minnehoma Oil & Gas Company stock in April of 1934. Upon the consolidation, George F. Getty, Inc., succeeded to these shares of Minnehoma stock. No additional Minnehoma stock was acquired by George F. Getty, Inc., during the period here in controversy. In 1937, George F. Getty, Inc., received a small amount of Richfield Oil Corporation stock which produced a total of $259.50 in dividends. This stock was received in satisfaction of a claim of a predecessor corporation against Richfield Oil Corporation. All the German bonds held by George F. Getty, Inc., were received from Getty, Inc., at the time of the merger on August 31, 1937; of the 666,000 German bonds held by George F. Getty, Inc., on December 31, 1939, approximately 18,000 were acquired by Getty, Inc., during the period here in controversy. George F. Getty, Inc., owned stock in two other corporations, Santa Fe Investment Company and the Getty Realty Corporation. No income derived from either of these corporations is here in controversy. George F. Getty, Inc., received 200,000 shares of stock in the Santa Fe Investment Company from J. Paul Getty on July 27, 1938, in exchange for a $236,420 note of Pacific Western Oil Corporation. Getty Realty Corporation, a New York corporation, was organized by the taxpayer to own and operate the Hotel Pierre in New York City. George F. Getty, Inc., purchased 500 shares of Getty Realty Corporation stock on October 11, 1938 for $50,000. This represented all the outstanding stock of Getty Realty Corporation. In 1938 the taxpayer loaned Getty Realty Corporation $2,310,100.
In 1937 taxpayer, George F. Getty, Inc., had 496 employees, of whom an average of 463 were employed in California; out of a total payroll of $1,066,638.53, California employees received $993,933.72. During the period here in controversy, George F. Getty, Inc., had four employees in the New Jersey office of that company. These were Mr. Rowland, Mr. Krug and two secretaries. These employees in the New Jersey office worked for a number of other corporations as well as for George F. Getty, Inc.
At the Los Angeles office of George F. Getty, Inc., the assistant secretary of that company and five other employees were engaged in keeping the accounting records of the taxpayer. The general ledger of the company and the detailed accounting records with relation to oil and gas production were kept at the Los Angeles office. The financial and operating statements of the taxpayer were prepared in the Los Angeles office and forwarded to New Jersey. The annual reports were prepared by the assistant secretary in the Los Angeles office. Each of the offices of the taxpayer kept its own records of cash, receipts, and disbursements which were sent to Los Angeles to be collated and entered into the final operating statement. The accounting records kept by the New Jersey...
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