Amicus curiae brief on behalf of Tax Executive Institute, Inc. in support of plaintiffs-appellants.

• Position: California

IN THE SUPREME COURT OF THE STATE OF CALIFORNIA No. S127086

GENERAL MOTORS CORPORATION, et al., Plaintiffs and Appellants,

v.

FRANCHISE TAX BOARD, Defendant and Appellant.

On April 27, 2005, Tax Executives Institute filed the following brief amicus curiae in General Motors Corporation v. Franchise Tax Board with the Supreme Court of California regarding the Franchise Tax Board's failure to adhere to the unitary business principle in administering California's research tax credit. Last August, TEI sent letter a supporting General Motors' petition requesting the California Supreme Court review the case; that letter appears in the September-October 2004 issue of The Tax Executive at page 412. The brief was prepared under the aegis of the Institute's State and Local Tax Committee, whose chair is Janet M. Wilson of Halliburton Company. Ed. note: Because no member of the Institute's legal staff is admitted to practice in California, Kendall L. Houghton of Sutherland Asbill & Brennan LLP agreed to serve as TEI's counsel of record.

1. Introduction

   Tax Executives Institute, Inc. ("TEI" or "the Institute") respectfully requests that the decision of the Court of Appeal that only one member of General Motors Corporation's California unitary group ("unitary group") is entitled to a research credit against the group's California tax liability be reversed.

   TEI, organized in 1944, is a voluntary, non-profit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. The more than 2,800 multi-jurisdictional companies represented by the Institute's nearly 5,700 members are significantly affected by the allocation and apportionment of income and expenses--along with the attendant issues related to computation of tax liability--among the various states.

   Today, TEI has five California-based chapters and a majority of its non-California-based members work for companies with property, payroll, or sales in the state. Moreover, the companies represented by TEI members collectively engage in substantial research activities, both in California and elsewhere. Thus, the disposition of the research tax credit issue in this case is a concern not only for members within the Institute's five chapters located in California, but for all its members whose companies conduct research activities within the state.

   General Motors Corporation and certain affiliated commercial enterprises ("General Motors") compose a unitary business for California tax purposes. California uses the definition of unitary business recognized by the Supreme Court of the United States a quarter-century ago: a business that exhibits "contributions to income resulting from functional integration, centralization of management, and economies of scale." Mobil Oil Corp. v. Comm'r of Taxes, 445 U.S. 425, 438 (1980). The Franchise Tax Board ("FTB") acknowledges that to pass constitutional muster, a finding of a unitary business must be predicated on "a flow of value, not a flow of goods." Container Corp. v. Franchise Tax Bd. 463 U.S. 159, 178 (1983). See FTB Publication 1061, 2004 Guidelines for Corporations Filing A Combined Report 3 (2004) ("[O]nce it is determined that a business with income from sources within and outside the state is...