Finnigan Case Brief

CASE NAMES

Appeal of Finnigan Corporation, California State Board of Equalization, No. 88-SBE-022, August 25, 1988 , 88SBE022.

Appeal of Finnigan Corporation, California State Board of Equalization, No. 88-SBE-022-A, January 24, 1990 , 88SBE022 , -A.

FACTS

Appellant, a California corporation, is engaged in a unitary business that manufactures and sells scientific instruments. Appellant conducts its unitary business through various subsidiaries, including Disc, in California, other states, and foreign countries.

During the appeal years Disc, also a California corporation, manufactured and sold a line of sophisticated scientific instruments somewhat different from those of appellant to customers inside and outside of California. Disc maintained its own sales staff and had its own customers. Disc was not taxable in any of those states outside of California into which it made sales although appellant, itself, was taxable in those states.

In computing the sales factor appellant treated Disc's out-of-state sales as non-California sales and applied the destination rule. The FTB, however, determined that Disc could not show that it was taxable in those states even though appellant, itself, was taxable in those states. Therefore, the FTB concluded that the "throw back" rule was applicable and treated the sales as California sales, thereby including them in the numerator of the sales factor.

ISSUE

For purposes of calculating the sales factor of the apportionment formula, should the sales made by the taxpayer's unitary subsidiary to destinations in states other than California be "thrown back" to California even though the subsidiary itself was not taxable in those states?

ANALYSIS

Joyce was not overruled in the original court decision, because, strictly speaking, it involved a different set of facts and a different problem. In the court's opinion, Joyce established an unsound rule of apportionment out of fear that the courts would give an expansive