Was a withdrawn but undissolved Nevada corporation still doing business in California when its Los Angeles office only pursued federal refunds and wound up affairs?

Plain-English summary

California Legal Ruling 12 held that a withdrawn corporation was not doing business in California when its remaining activity consisted only of pursuing federal tax refunds and winding up its affairs.

The corporation had sold all operating assets, received no income after withdrawal, and entered into no profit-seeking transaction.

Maintaining a Los Angeles office and paying salaries and expenses did not change the result 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.

As of January 1, 1949, its only remaining assets 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 activities.

The taxpayer had no receipts or income in 1949, although it paid salaries and other expenses.

Historical doing-business test

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

It said a corporation existing only to collect receivables, pay obligations, and pursue federal refund claims was not doing business when those acts were not aimed at producing income.

Why the California office did not control

The office staff did not operate a revenue-producing business.

They pursued federal tax claims and completed the corporation's wind-up after all operating assets had been disposed of.

The ruling found no evidence of any transaction entered into for profit. Physical office presence therefore did not establish doing-business status on its own.

Withdrawal was not automatically decisive

The ruling cautioned that a corporation could formally withdraw from California and still continue activities that constituted doing business.

The conclusion here was factual: this corporation's particular post-withdrawal activities lacked the required profit purpose.

What this means for you

Withdrawing corporations

Under the historical ruling, 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

Keep records showing when operating assets were sold, whether new income was pursued, what employees did, which assets remained, and why any office continued.

Accountants and tax professionals

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

Common questions

Q: Was the corporation dissolved?

A: No. It had withdrawn from California but remained in existence.

Q: Did keeping a Los Angeles office mean it was doing business?

A: No, not where the office only pursued federal refund claims and wound up affairs.

Q: Did the corporation receive income in 1949?

A: No.

Q: What assets remained?

A: Bank deposits and federal tax refunds receivable.

Q: Does formal withdrawal always prevent doing-business status?

A: No. The ruling said a withdrawn corporation could still conduct qualifying activity; this corporation simply 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 12

Original ruling text

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Legal Ruling 1958-12

California Franchise Tax Board
Legal Ruling No. 012

June 26, 1958

Liquidating Activities: Doing Business

As a matter of factual determination the liquidating activities of the subject corporation 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