25101-25108

REVENUE AND TAXATION CODE
SECTION 25101-25108




25101.  When the income of a taxpayer subject to the tax imposed
under this part is derived from or attributable to sources both
within and without the state the tax shall be measured by the net
income derived from or attributable to sources within this state in
accordance with the provisions of Article 2 (commencing with Section
25120). However, any method of apportionment shall take into account
as income derived from or attributable to sources without the state,
income derived from or attributable to transportation by sea or air
without the state, whether or not the transportation is located in or
subject to the jurisdiction of any other state, the United States or
any foreign country.
   If the Franchise Tax Board reapportions net income upon its
examination of any return, it shall, upon the written request of the
taxpayer, disclose to it the basis upon which its reapportionment has
been made.



25101.1.  The amendments made at the 1957 Regular Session of the
Legislature to Section 25101 of the Revenue and Taxation Code shall
be applicable only with respect to income years beginning after
December 31, 1956. The determination as to whether income derived
from or attributable to transportation by sea or air is allocable to
or taxable by California for any income year beginning before January
1, 1957, shall be made as if Section 25101 had not been amended at
the 1957 Regular Session of the Legislature and without inferences
drawn from the fact that such amendments were not expressly made
applicable with respect to income years beginning before January 1,
1957.



25101.15.  If the income of two or more taxpayers is derived solely
from sources within this state and their business activities are such
that if conducted within and without this state a combined report
would be required to determine their business income derived from
sources within this state, then such taxpayers shall be allowed to
determine their business income in accordance with Section 25101.




25101.3.  The property factor as it relates to the aircraft of an
air carrier or foreign air carrier, as defined in Section 1150, or
the operator of an air taxi, as defined in Section 1154, shall be
allocated on the basis of a formula consisting of time and arrivals
and departures as follows:
   (a) The time in state is the proportionate amount of time, both in
the air and on the ground, that certificated aircraft have spent
within the state during the taxable year as compared to the total
time everywhere during the taxable year. This factor shall be
multiplied by 75 percent.
   (b) Arrivals and departures is the number of arrivals in and
departures from airports within the state of certificated aircraft
during the taxable year as compared to the total number of arrivals
in and departures from airports both within this state and elsewhere
during the taxable year. This factor shall be multiplied by 25
percent.
   (c) The time in state factor shall be added to the arrivals and
departures factor.
   (d) The figure produced by application of subdivision (c) equals
the allocation to be applied to the original cost of property owned
or rented by the taxpayer determined under the provisions of Section
25130.
   (e) If annual statistics for the taxpayer's taxable year are not
available, statistics for representative periods designated by the
Franchise Tax Board shall be used provided that permission to do so
has been granted to the taxpayer by the Franchise Tax Board.



25102.  In the case of two or more persons, as defined in Section 19
of this code, owned or controlled directly or indirectly by the same
interests, the Franchise Tax Board may permit or require the filing
of a combined report and such other information as it deems necessary
and is authorized to impose the tax due under this part as though
the combined entire net income was that of one person, or to
distribute, apportion, or allocate the gross income or deductions
between or among such persons, if it determines that such
consolidation, distribution, apportionment, or allocation is
necessary in order to reflect the proper income of any such persons.




25103.  In the case of a corporation doing business within the
meaning of this part, whether under agreement or otherwise, in such
manner as either directly or indirectly to benefit the members or
stockholders of the corporation, or any of them, or any person or
persons, directly or indirectly interested in such business, by
rendering services of any nature whatsoever, or acquiring or
disposing of its products or the goods or commodities in which it
deals, at less than a fair price therefore, the Franchise Tax Board,
in order to prevent evasion of taxes or clearly to reflect the income
of such corporation, may require a report of such facts as it deems
necessary, and may determine the amount which shall be deemed to be
the entire net income allocable to this State of the business of such
corporation for the calendar or fiscal year, and compute the tax
upon such net income. In determining the entire net income the
Franchise Tax Board shall have regard to the fair profits which, but
for any agreement, arrangement, or understanding, might be or could
have been obtained from dealing in such products, goods or
commodities.



25104.  In the case of a corporation liable to report under this
part owning or controlling, either directly or indirectly, another
corporation, or other corporations, and in the case of a corporation
liable to report under this part and owned or controlled, either
directly or indirectly, by another corporation, the Franchise Tax
Board may require a consolidated report showing the combined net
income or such other facts as it deems necessary. The Franchise Tax
Board is authorized and empowered, in such manner as it may
determine, to assess the tax against either of the corporations whose
net income is involved in the report upon the basis of the combined
entire net income and such other information as it may possess, or it
may adjust the tax in such other manner as it shall determine to be
equitable if it determines it to be necessary in order to prevent
evasion of taxes or to clearly reflect the net income earned by said
corporation or corporations from business done in this State.



25105.  (a) For purposes of this article, other than Section 25102,
the income and apportionment factors of two or more corporations
shall be included in a combined report only if the corporations,
otherwise meeting the requirements of Section 25101 or 25101.15, are
members of a commonly controlled group.
   (b) A "commonly controlled group" means any of the following:
   (1) A parent corporation and any one or more corporations or
chains of corporations, connected through stock ownership (or
constructive ownership) with the parent, but only if--
   (A) The parent owns stock possessing more than 50 percent of the
voting power of at least one corporation, and, if applicable,
   (B) Stock cumulatively representing more than 50 percent of the
voting power of each of the corporations, except the parent, is owned
by the parent, one or more corporations described in subparagraph
(A), or one or more other corporations that satisfy the conditions of
this subparagraph.
   (2) Any two or more corporations, if stock representing more than
50 percent of the voting power of the corporations is owned, or
constructively owned, by the same person.
   (3) Any two or more corporations that constitute stapled entities.
   (A) For purposes of this paragraph, "stapled entities" means any
group of two or more corporations if more than 50 percent of the
ownership or beneficial ownership of the stock possessing voting
power in each corporation consists of stapled interests.
   (B) Two or more interests are stapled interests if, by reason of
form of ownership restrictions on transfer, or other terms or
conditions, in connection with the transfer of one of the interests
the other interest or interests are also transferred or required to
be transferred.
   (4) Any two or more corporations, all of whose stock representing
more than 50 percent of the voting power of the corporations is
cumulatively owned (without regard to the constructive ownership
rules of paragraph (1) of subdivision (e)) by, or for the benefit of,
members of the same family. Members of the same family are limited
to an individual, his or her spouse, parents, brothers or sisters,
grandparents, children and grandchildren, and their respective
spouses.
   (c) (1) If, in the application of subdivision (b), a corporation
is eligible to be treated as a member of more than one commonly
controlled group of corporations, the corporation shall elect to be
treated as a member of only one commonly controlled group. This
election shall remain in effect unless revoked with the approval of
the Franchise Tax Board.
   (2) Membership in a commonly controlled group shall be treated as
terminated in any year, or fraction thereof, in which the conditions
of subdivision (b) are not met, except as follows:
   (A) When stock of a corporation is sold, exchanged, or otherwise
disposed of, the membership of a corporation in a commonly controlled
group shall not be terminated, if the requirements of subdivision
(b) are again met immediately after the sale, exchange, or
disposition.
   (B) The Franchise Tax Board may treat the commonly controlled
group as remaining in place if the conditions of subdivision (b) are
again met within a period not to exceed two years.
   (d) A taxpayer may exclude some or all corporations included in a
"commonly controlled group" by reason of paragraph (4) of subdivision
(b) by showing that those members of the group are not controlled
directly or indirectly by the same interests, within the meaning of
the same phrase in Section 482 of the Internal Revenue Code. For
purposes of this subdivision, the term "controlled" includes any kind
of control, direct or indirect, whether legally enforceable, and
however exercisable or exercised.
   (e) Except as otherwise provided, stock is "owned" when title to
the stock is directly held or if the stock is constructively owned.
   (1) An individual constructively owns stock that is owned by any
of the following:
   (A) His or her spouse.
   (B) Children, including adopted children, of that individual or
the individual's spouse, who have not attained the age of 21 years.
   (C) An estate or trust, of which the individual is an executor,
trustee, or grantor, to the extent that the estate or trust is for
the benefit of that individual's spouse or children.
   (2) Stock owned by a corporation, or a member of a controlled
group of which the corporation is the parent corporation, is
constructively owned by any shareholder owning stock that represents
more than 50 percent of the voting power of the corporation.
   (3) Stock owned by a partnership is constructively owned by any
partner, other than a limited partner, in proportion to the partner's
capital interest in the partnership. For this purpose, a partnership
is treated as owning proportionately the stock owned by any other
partnership in which it has a tiered interest, other than as a
limited partner.
   (4) In any case where a member of a commonly controlled group, or
shareholders, officers, directors, or employees of a member of a
commonly controlled group, is a general partner in a limited
partnership, stock held by the limited partnership is constructively
owned by a limited partner to the extent of its capital interest in
the limited partnership.
   (f) For purposes of this section, each of the following shall
apply:
   (1) "Corporation" means a subchapter S corporation, any other
incorporated entity, or any entity defined or treated as a
corporation pursuant to Section 23038 or 23038.5.
   (2) "Person" means an individual, a trust, an estate, a qualified
employee benefit plan, a limited partnership, or a corporation.
   (3) "Voting power" means the power of all classes of stock
entitled to vote that possess the power to elect the membership of
the board of directors of the corporation.
   (4) "More than 50 percent of the voting power" means voting power
sufficient to elect a majority of the membership of the board of
directors of the corporation.
   (5) "Stock representing voting power" includes stock where
ownership is retained but the actual voting power is transferred in
either of the following manners:
   (A) For one year or less.
   (B) By proxy, voting trust, written shareholder agreement, or by
similar device, where the transfer is revocable by the transferor.
   (g) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section, including, but not limited to, regulations that do the
following:
   (1) Prescribe terms and conditions relating to the election
described by subdivision (c), and the revocation thereof.
   (2) Disregard transfers of voting power not described by paragraph
(5) of subdivision (f).
   (3) Treat entities not described by paragraph (2) of subdivision
(f) as a person.
   (4) Treat warrants, obligations convertible into stock, options to
acquire or sell stock, and similar instruments as stock.
   (5) Treat holders of a beneficial interest in, or executor or
trustee powers over, stock held by an estate or trust as
constructively owned by the holder.
   (6) Prescribe rules relating to the treatment of partnership
agreements which authorize a particular partner or partners to
exercise voting power of stock held by the partnership.
   (h) This section shall apply to taxable years beginning on or
after January 1, 1995.



25106.  (a) (1) In any case in which the income of a corporation is
or has been determined under this chapter with reference to the
income and apportionment factors of one or more other corporations
with which it is doing or has done a unitary business, all dividends
paid by one to another of any of those corporations shall, to the
extent those dividends are paid out of the income previously
described of the unitary business, be eliminated from the income of
the recipient and, except for purposes of applying Section 24345,
shall not be taken into account under Section 24344 or in any other
manner in determining the tax of any member of the unitary group.
   (2) (A) For purposes of this section, the dividends described in
paragraph (1) include dividends paid out of the income previously
described of the unitary business by a member of the unitary group to
a corporation formed subsequent to the accrual of the income, if the
recipient corporation was part of the unitary group during the
period from its formation to its receipt of those dividends.
   (B) The Franchise Tax Board may deny any dividend elimination for
the dividends described in this paragraph if the board determines
that a transaction is entered into or structured with a principal
purpose of evading the tax imposed by this part.
   (3) For purposes of this section, "income previously described of
the unitary business" shall include income earned by members of the
unitary group during taxable years when no member of the unitary
group was taxable in this state to the extent that the income of the
unitary group would have been determined under this chapter had any
member of the corporation's unitary group been subject to tax in this
state at the time that income was earned.
   (b) The Franchise Tax Board may prescribe any regulations that may
be necessary or appropriate to carry out the purpose of this
section, which is to prevent taxation of dividends received by a
member of a unitary group where those dividends were paid from the
income previously described of the unitary business by another member
of the same unitary group.



25106.5.  (a) The Franchise Tax Board may adopt regulations
necessary to ensure that the tax liability or net income of any
taxpayer whose income derived from or attributable to sources within
this state which is required to be determined by a combined report
pursuant to Section 25101 or 25110 of this chapter, and of each
entity included in the combined report, both during and after the
period of inclusion in the combined report is properly reported ,
determined, computed, assessed, collected, or adjusted.
   (b) Notwithstanding subdivision (a), the Franchise Tax Board shall
not adopt regulations under the authority of this section which
shall in any manner determine, prescribe, or otherwise affect (1) the
inclusion or exclusion in the combined report of those entities
whose income and apportionment factors are to be taken into account
pursuant to Sections 25101 and 25110 of this chapter, or (2) after
the period of inclusion, cause the income or expenses of an entity
which is excluded from a combined report pursuant to Sections 25101
and 25110 of this part to be included in a combined report.



25107.  (a) For the purposes of allocation and apportionment of
income under Sections 25101 and 25121, an international banking
facility maintained by a bank within California shall be considered
doing business without the state. Intangible personal property and
sales reflected on the segregated books and records recognized by the
Board of Governors of the Federal Reserve System as attributable to
the international banking facility shall be attributed to that
international banking facility in determining the property, payroll,
and sales factors of the bank.
   (b) As used in this section, "bank" means a commercial bank, the
principal office of which is located in this state and which is
incorporated and doing business under the laws of the United States
or of this state, a United States branch or agency of a foreign bank,
an Edge corporation organized under Section 25 (a) of the Federal
Reserve Act, 12 United States Code 611-631, or an Agreement
corporation having an agreement or undertaking with the Board of
Governors of the Federal Reserve System under Section 25 of the
Federal Reserve Act, 12 United States Code 601-604 (a).



25108.  (a) For corporations whose income is subject to the
provisions of Section 25101 or 25101.15, the net operating loss
determined in accordance with Section 172 of the Internal Revenue
Code for a particular taxable year shall be the corporation's "net
loss for state purposes" as defined in subdivision (c).
   (b) The net operating loss deduction allowed by Sections 24416,
24416.1, and 24416.2, for a taxable year shall be deducted from "net
income for state purposes" (as defined in subdivision (c)) for that
taxable year.
   (c) "Net income (loss) for state purposes" means the sum of the
net income or loss of that corporation apportionable to this state
and the income or loss allocable to this state as nonbusiness income,
as provided by Chapter 17 (commencing with Section 25101).