Bunzl Distribution USA, Inc. v. Franchise Tax BoardAnnotate this Case
The U.S. Constitution prohibits states from taxing income earned outside their borders but permits taxation of an apportionable share of the multistate business carried on in the taxing state and grants states some leeway in separating out their respective shares of this multistate income, not mandating they use any particular formula. California adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) (Rev. & Tax. Code 25120), which sets forth an apportionment formula for "unitary businesses." UDITPA does not define the term “unitary business.” In California, a unitary business is generally defined as two or more business entities that are commonly owned and integrated in a way that transfers value among the affiliated entities. Bunzl, a multinational entity comprised of numerous subsidiary corporations and limited liability companies, appealed the trial court’s judgment upholding the Franchise Tax Board’s determination that Bunzl owed $1,403,595 in taxes to California for 2005. Bunzl claimed the Board should have excluded income from Bunzl’s LLCs in calculating its California tax liability. The court of appeal rejected Bunzl’s contention and affirmed. The taxpayer has the burden of showing that the state tax results in extraterritorial values being taxed. That burden is increased because one of UDITPA’s purposes is to avoid double taxation. Bunzl, an acknowledged unitary business, made no showing that what it does inside California is unrelated to its operations outside California.