Legal Ruling 410

Franchise Tax Board - Legal Division

January 16, 1979

Ownership Requirement for Combined Reporting Purposes Where the Parent is a General Corporation


Over 50 percent of the voting stock of each of three corporations (subsidiaries) is owned by a common corporation (parent). The three subsidiaries are engaged in a single unitary business conducted within and without this state. None of the subsidiaries are, however, engaged in a unitary business with the parent company. Therefore, the parent company is not a part of the unitary business conducted by the three subsidiaries and thus not includible with the three subsidiaries for combined reporting purposes.


Is the unity of ownership requirement for purposes of combining the three subsidiaries satisfied where the subsidiaries are owned and controlled by the same parent corporation and are engaged in a single unitary business, but none of which are unitary with the parent corporation?




In the case of Chase Brass & Copper Co. v. Franchise Tax Board, 10 Cal.App.3d 496, 87 Cal.Rptr. 239, appeal dismissed and Cert. denied, 400 U.S. 961, 27 Law.Ed.2d 381, 91 Sup. Ct. 365 (1970), the court was faced with the question of whether unity of ownership existed where it was found that two wholly owned subsidiaries were engaged in a unitary business but one had only a few unitary ties with the common parent company. The court held that unity of ownership was present, as the parent was the sole owner of the stock of both subsidiaries.

In the Appeal of Revere Copper and Brass Incorporated, Cal. St. Bd. of Equal, July 26, 1977, CCH 205-752, P-H 13,102-S, the Board of Equalization stated:

The ownership requirement contemplates an element of controlling ownership over all parts of the business; -

Generally speaking, controlling ownership can only be established by common ownership, directly or indirectly, of more than 50 percent of a corporation's voting stock. (Emphasis added.)


See also the Appeal of Standard Brands Incorporated, Cal. St. Bd. of Equal., October 18, 1977, CCH 205-789, P-H .

The language in the above case is consistent with the result reached by the court in Chase Brass and makes it clearly evident that all that is needed to satisfy the ownership requirement for combination purposes is the presence of the element of controlling ownership. There is no requirement that the corporation holding controlling ownership itself be unitary and combinable with the unitary group.