Is Your Company “Doing Business” in California? It May Depend on Who You Ask.
by Jennifer L. Villier, JD | Legal Education Faculty, WealthCounsel
According to Kenny Rogers, “you can’t outrun the long arm of the law. No, you can’t outrun the long arm of the law.” According to a January 2017 decision by the California Court of Appeal, however, you can outrun the long arm of the California franchise tax law (at least when that law is improperly applied).
In Swart Enterprises, Inc. v. Franchise Tax Board, a small family-owned Iowa corporation (“Swart” or “the corporation”) contested California franchise tax liability imposed on the corporation despite its very limited connection to the state. Subjecting the corporation to California franchise taxes was an attempt by the state to impose state-level franchise taxes on an out-of-state entity based on its passive ownership of a California business. Although the court ruled in the taxpayer’s favor, the case serves as a reminder to small business attorneys to counsel clients about the financial, regulatory, and tax-based implications of interstate operations. Download this brief to learn more.