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LEGAL RULING NO. 090

CALIFORNIA FRANCHISE TAX BOARD
Legal Ruling No. 090

June 26, 1958

DOING BUSINESS: FOREIGN CORPORATIONS

Execution of contract for construction and financing of a processing plant for taxpayer's products, together with preliminary negotiations and other acts, constitutes doing business.

In 1946 employees of taxpayer, a foreign corporation, conducted preliminary negotiations in California with a local partnership regarding the construction of a processing plant in this State. The plant was to be owned by the partnership but would process the products of the taxpayer who in turn would sell them. Taxpayer was to loan the money with which the partnership would construct the plant. In November, 1946, the contract was signed, and taxpayer qualified in California to protect its rights under the contract. Also in 1946 construction of the plant was begun, processing machinery ordered and delivered to the site, and a bank account opened with the money that was to be loaned for construction of the plant. Advice is requested as to whether taxpayer commenced doing business in California in 1946.

For income or franchise tax purposes more than an isolated or occasional local act is required before a taxpayer is doing business and subject to the tax. However, when the isolated local act is the first of an intended series of acts and not merely incidental to the corporate purpose stated in its charter, the corporation is regarded as doing business. And, additional significance attaches to the isolated act if the corporation makes a substantial investment in the state.

In the instant case taxpayer entered into a contract to have constructed a plant which would process the commodities sold in the course of its regular business. The negotiations in connection with this were carried on in California. In addition to the act of signing the contract, the fact that the corporation contracted to invest in the construction of the plant gives added emphasis. Therefore, it is concluded that taxpayer was doing business within California in 1946.