Did a Nevada corporation continue doing business in California after withdrawal when its remaining office only pursued tax refunds and wound up affairs?

Plain-English summary

California Legal Ruling 11 held that a withdrawn Nevada corporation was not doing business in California when its remaining activity consisted only of pursuing federal tax refunds and winding up.

The corporation had disposed of its operating assets, received no income after withdrawal, and entered into no profit-seeking transaction.

Keeping a Los Angeles office and paying salaries and expenses did not establish doing-business status because the staff served only the liquidation.

Facts addressed by the ruling

The taxpayer was a Nevada corporation qualified to do business in California.

It sold its operating assets in 1947 and 1948 and withdrew from California in January 1949, though it was not dissolved.

Its only assets as of January 1, 1949, were bank deposits and federal tax refunds receivable.

After withdrawal, it maintained an office in Los Angeles with X Corporation. It had no Nevada office or activity.

The taxpayer had no receipts or income in 1949 but continued to pay salaries and certain other expenses.

Historical doing-business test

The ruling defined doing business as active engagement in a transaction for financial or pecuniary gain or profit.

Collecting receivables, paying obligations, and pursuing federal refund claims did not meet that standard when performed only to close the corporation's affairs and not to produce income.

Why the California office was insufficient

The office staff prosecuted federal tax claims and completed the wind-up after all operating assets had been sold.

No evidence showed a transaction entered into for profit. Physical office presence therefore did not control the historical doing-business determination.

Withdrawal did not automatically decide the issue

The ruling acknowledged that a corporation could withdraw from California yet continue activity amounting to doing business.

Its conclusion was specific to this corporation's non-income-producing wind-up activities.

Official duplicate-page note

FTB separately publishes Legal Ruling 12 with substantially the same factual narrative and analysis under the title "Liquidating Activities: Doing Business."

This page remains assigned to Legal Ruling 11 because FTB's index and official pages present the two ruling numbers separately.

What this means for you

Withdrawing corporations

Under the historical ruling, formal withdrawal did not end the inquiry, but a genuine wind-up limited to old claims and obligations could fall outside doing-business status.

Corporate officers

Maintain evidence showing when operating assets were sold, what employees did, which assets remained, whether new income was sought, and why any California office continued.

Accountants and tax professionals

Distinguish passive wind-up activity from investing, interest earning, new contracting, or other profit-seeking conduct. Apply current withdrawal, dissolution, filing, and minimum-tax rules independently.

Common questions

Q: Was the corporation dissolved?

A: No. It withdrew from California but remained in existence.

Q: Did the Los Angeles office create doing-business status?

A: No, because it only pursued federal tax claims and wound up affairs.

Q: Did the corporation have income in 1949?

A: No.

Q: What assets remained?

A: Bank deposits and federal tax refunds receivable.

Q: Does withdrawal always prevent doing-business status?

A: No. The ruling said a withdrawn corporation could continue qualifying activity; this corporation did not.

Citations and references

• Appeal of Johnson Foundry & Machine Co. (Cal. St. Bd. of Equal., November 17, 1949, as printed in this ruling)

Source

• Landing page: California FTB Legal Rulings
• Official HTML: Legal Ruling 11

Original ruling text

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Legal ruling 1958-11

California Franchise Tax Board
Legal Ruling No. 011

June 26, 1958

Doing Business: Activities After Withdrawal

As a matter of factual determination the activities of the subject corporation after withdrawal from this State did not constitute doing business.

Taxpayer, a Nevada corporation qualified to do business in California, withdrew in January, 1949, however, it was not dissolved. In 1947 and 1948 the operating assets had been sold and the only assets remaining as of January 1, 1949 were bank deposits and Federal tax refunds receivable. After withdrawal taxpayer maintained an office in Los Angeles with X Corporation. There were no activities nor office in Nevada. Taxpayer had no income subsequent to January 1, 1949, although salaries and certain other expenditures were made during the year. Advice is requested as to whether taxpayer was "doing business" after its withdrawal.

"Doing business" is defined as actively engaged in any transaction for financial or pecuniary gain or profit. A corporation remaining in existence solely for the purpose of collecting its accounts receivable, discharging its accounts payable, and pursuing a claim for refund of Federal taxes has been held not to be doing business within the meaning of the law. Such transactions were not aimed at the production of income. (Appeal of Johnson Foundry & Machine Co., State Board of Equalization, November 17, 1949). The instant case presents a similar situation. The records show that taxpayer had no receipts and no income in 1949. There is no evidence shown of any transaction entered into for profit, it appearing that the office staff was maintained merely to prosecute Federal tax claims and accomplish winding up of the affairs of the corporation, all operating assets having been disposed of. Although a corporation may withdraw and yet continue activities which constitute "doing business", the activities of taxpayer were not of such a nature and taxpayer was not doing business after its withdrawal.

Last updated: 09/24/2025