Citicorp North America, Inc. & Affiliates v. Franchise Tax Bd. (2000)

[Modification fn. * of Opinion (83 Cal. App. 4th 1403 ) on denial of petition for rehearing with no change in judgment.]

CITICORP NORTH AMERICA, INC. & AFFILIATES, Plaintiffs and Appellants, v. FRANCHISE TAX BOARD, Defendant and Respondent.

STRANKMAN, P.J.-

It is ordered that the opinion filed October 2, 2000, be modified in the following particulars:

1. On pages 29-30 [83 Cal. App. 4th 1430-31, advance report], footnote 25 is changed to read as follows:

Citicorp argues that the trial court incorrectly found that FTB regulations did not compel business income treatment of the gains. (Cal. Code Regs., tit. 18, § 25137-4-1.) The referenced regulation states that "[a]ll income of banks and financial corporations shall be 'business income' unless the income arises from an investment or activity which is not a banking function." However, the evidence supported a factual determination that these gains arose as a part of the normal business activity of Citicorp group's unitary business operations. Citicorp offered no evidence that maintaining space for personnel was not a part of its banking functions. Citicorp argues that the second referenced regulation would actually require business income treatment. FTB Regulation 25120, subd. (c)(2) contains several illustrative examples of what may differentiate business from nonbusiness income. (Cal. Code Regs., tit. 18, § 25120, subd. (c)(2).) Citicorp argues that it should get special treatment for the floors of the buildings it did not occupy. The examples do not help Citicorp. One states that a manufacturing plant that is continuously used in the business and subsequently sold generates business income. One of them posits a taxpayer's manufacturing plant that is closed, put up for sale, and rented out while being held for sale. The rental income and the gain on the sale were business income. (Cal. Code Regs., tit. 18, § 25120, subd. (c)(2), exs. B-D.) The examples in the regulation do not require reversal of the judgment.

2. On page 31 footnote 26 is inserted following the word "affirmed" in the last sentence of the opinion [83 Cal. App. 4th 1433 , advance report, 1st par., line 3] and reads as follows: [84 Cal. App. 4th 670f]

"Appellant's request for judicial notice is granted. The documents therein and the referenced web site of the Franchise Tax Board were reviewed, but were not useful in the analysis of the issues raised on appeal. The court recognizes that the Franchise Tax Board documents submitted disclose an intent to return to the rule of Joyce."

This modification does not effect a change in the judgment.

Appellant's petition for rehearing is denied.

FN *. This modification requires movement of text affecting pages 1408-1409 of the bound volume report.