An out-of-state corporation, whose sole connection to California was a 0.2% interest in a manager-managed California limited liability company, was not “doing business” in California for purposes of the California corporate franchise tax according to the California Court of Appeal for the Fifth Appellate District in its recently-issued decision, Swart Enterprises, Inc. v. Franchise Tax Board, Case No. F070922. The appellate court’s decision affirmed the judgment of the California Superior Court and overturned the rationale articulated by the Franchise Tax Board (“FTB”) in FTB Ruling 2014-01 (July 22, 2014), which was issued by the FTB while the Swart case was pending.
The Massachusetts Supreme Judicial Court recently held in The First Marblehead Corporation v. Commissioner of Revenue (“First Marblehead II”), 475 Mass. 159 (2016), that securitized loans of GATE Holdings Inc. (“Gate”) were properly sourced to Gate’s commercial domicile in Massachusetts for purposes of computing Gate’s property factor for Massachusetts financial institutions excise tax (“FIET”) purposes, and that the FIET, as applied to Gate, satisfies the internal consistency test.