Daniel V -- California FTB Loses Against Nevada Corporation

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Daniel V -- California FTB Loses Against Nevada Corporation

Postby JDA » Thu Feb 21, 2013 4:09 pm








[Tentative and Proposed]


The action was tried before the Court on November 5, and November 6, 2012. Plaintiff, Daniel V Inc., submitted its closing argument on November 27, 2012. Defendant, California Franchise Tax Board, submitted its closing augments on December 11, 2012. On December 18, 2102, plaintiff submitted its rebuttal argument. After due consideration of those arguments, the evidence presented at trial and the pleadings on file, Court hereby issues its tentative and proposed statement of decision.


Plaintiff's Complaint sets forth a single cause of action pursuant to Revenue and Taxation Code sec. 19382 for the Refund of Taxes, Interest and Penalties Paid. The complaint alleges that the defendant Franchise Tax Board issued a Notice of Proposed Assessment with respect to Plaintiff's 1997 and 1998 tax years. The proposed assessments were based upon defendant's conclusion that plaintiff was commercially domiciled in the state of California. Plaintiff maintains that at all relevant times, it was a Nevada corporation, that its principle place of business was in Nevada and that it was commercially domiciled in Nevada. Plaintiff's protests to the proposed assessment were denied, as were plaintiff's subsequent appeals to the State Board of Equalization and plaintiff's claims for a refund. Plaintiff paid the Franchise Tax Board a total of $123,414.02 for taxes, interest and penalties for the year 1997 and $2,150,500.00 for the year 1998.


The resolution of this cases rest on the single issue as to whether plaintiff has met its burden of proof in establishing that it was commercially domiciled in the state of Nevada for the years 1997 and 1998. To that end, plaintiff submitted documentary evidence and oral testimony to support its contention.

Daniel V is incorporated in the state of Nevada. Plaintiff has made it clear that it does not intend to rely upon any presumption that a commercial domicile is the place of its incorporation. Nevertheless, the court considers this fact as a starting point for any analysis in determining the commercial domicile of a corporation. Plaintiff submitted uncontroverted evidence in its case in chief to meet its burden of proof that Nevada was the commercial domicile of Daniel V, Inc. It maintained its corporate office in that state. Plaintiff's bank accounts were held at the Bank of America branch in Las Vegas, Nevada. Its brokerage accounts were maintained with the Merrill Lynch office in Las Vegas, Nevada. Board of Directors meetings were held at the plaintiff's office in Nevada. Plaintiff's original books and records were maintained in Nevada. David Hehn was plaintiff's only corporate officer. He resided in Nevada. He singed all plaintiff's checks, handled plaintiff's expenditures and business affairs from Nevada. From all objective criteria, it would appear that the state of Nevada was the place of plaintiff's commercial domicile.

Defendant's primary contention is that Ron Lane, a California resident, in fact managed and directed Daniel V, Inc. from California. Mr. Lane was Daniel V's sole shareholder and a member of its board of directors. Revenue and Taxation Code sec. 25120(b) defines a corporation's "commercial domicile" as "the principal place from which the trade or business of the taxpayer is directed or managed." Defendant submitted no direct evidence to support its contention that Daniel V, Inc. was directed or managed by Ron Lane. The direct evidence produced at trial supports an entirely different conclusion. Both David Hehn and Ron Lane testified that Lane did not instruct Hehn on investments, that decisions on corporate matters were made by Hehn, and that Lane relied upon Hehn to manage Daniel V, Inc. The court found the testimony of both witnesses to be credible. By contrast, defendant's evidence consisted entirely of circumstantial evidence from which defendant asks the court to infer Mr. Lane was directing or managing the affairs of Daniel V, Inc. from California. The evidence is simply insufficient to draw any such inference, particularly in the face of the direct evidence to the contrary.


The Court finds in favor of Plaintiff. The Court orders a refund of the taxes paid, the interest paid, and the penalties paid. The Court further finds plaintiff to be entitled to an award of interest at the legal rate from and after the date of each payment made by plaintiff.

The Court determines plaintiff to be the prevailing party and awards cost and fees in an amount to be determined on subsequent motion. If no objection is filed within the time proscribed by California Rule of Court 3.1590, the proposed statement of decision will be become final.

Plaintiff is to submit a proposed form of judgment.

Date: February 6, 2013

Mark V. Mooney

Judge of the Los Angeles

Superior Court
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