How did California Legal Ruling 234 divide a unitary group's California income among group corporations conducting activities in the state?

Plain-English summary

California Legal Ruling 234 divided a unitary group's California income among its in-state corporations by measuring each corporation's California factors against the corresponding total factors of the entire group.

For each corporation, the ruling calculated property, payroll, and sales ratios and averaged them. The average determined that corporation's share of the group's unitary income.

The ruling described this as more accurate than comparing the California factors of the in-state corporations only to one another.

The method adopted

The ruling revised a relative-factor method previously approved in the Appeal of Kaiser-Frazer Sales Corporation.

When two or more group corporations contributed to California earnings, their relative contributions were measured by:

• each corporation's California property divided by total group property;
• each corporation's California payroll divided by total group payroll; and
• each corporation's California sales divided by total group sales.

The three ratios were averaged for each corporation. That average was applied to total unitary income.

The ruling's example

The hypothetical group had $1,000,000 of unitary income and conducted 13⅓% of its business in California. The ruling therefore identified $133,333 as the group's total California income.

Its final allocation was:

Why group totals mattered

The rejected comparison looked only at how the California corporations' in-state factors related to one another.

The revised method instead compared each corporation's California activity with the unitary group's total property, payroll, and sales. FTB said that relationship better measured each corporation's contribution to California income.

Official table inconsistency

The source's factor rows print these values for corporation C:

• payroll: 6%;
• property: 6.5%; and
• sales: 8%.

But the next two cells print C's total as 9% and its average as 3%. Those entries conflict with the factor rows and also with the final allocation row, which applies a printed 6.83⅓% to reach $68,333.

This page does not alter the official table. The preserved source text below reproduces the entries as published.

What this means for you

Multistate corporate groups

The historical ruling focused on each entity's relative contribution to the unitary business through property, payroll, and sales rather than treating the California entities as an isolated subgroup.

Corporate tax attorneys

The ruling is useful historical context for entity-level allocation within a unitary group, but current combined-reporting rules, factor definitions, weighting, and sourcing provisions must be analyzed independently.

Accountants and tax professionals

Reconcile every factor numerator and denominator to group records and confirm that displayed totals, averages, and income allocations agree arithmetically. The official example itself shows why that validation matters.

Common questions

Q: What denominator did the ruling use for each corporation's factors?

A: The corresponding total property, payroll, or sales factor of the entire unitary group.

Q: Were the California corporations compared only with one another?

A: No. The ruling expressly preferred comparison with the group's total factors.

Q: What was the group's California income in the example?

A: $133,333 out of $1,000,000 of unitary income.

Q: How was that amount divided?

A: $35,000 to A, $30,000 to B, and $68,333 to C.

Q: Is the source table internally consistent?

A: No. The printed total and average for corporation C conflict with its component-factor rows and final allocation.

Citations and references

• Appeal of Kaiser-Frazer Sales Corporation (Cal. St. Bd. of Equal., November 7, 1958)

Source

• Landing page: California FTB Legal Rulings
• Official HTML: Legal Ruling 234

Original ruling text

Home

Legal Ruling 1959-234

California Franchise Tax Board

Legal Ruling No. 234

October 27, 1959

Allocation: Apportionment of the California Income of a Unitary Business.

The California income of a unitary business must be divided among corporations having activities in this state, by assigning it to each corporation in accordance with the average ratio that the California factors of each such corporation bear to the total factors of the group.

The relative factor method of separating the income of a unitary business between the corporations, having activities in this state, approved by the State Board of Equalization in the Appeal of Kaiser-Frazer Sales Corporation, November 7, 1958, is revised as illustrated below.

Assume that the unitary income of a group of corporations is $1,000,000 and it does 13⅓% of its business in California. The total factors and California factors of each member are as follows:

Denominators

A
B
C
Total

Property
500,000
64,000
36,000
600,000

Payroll
300,000
74,000
26,000
400,000

Sales
4,000,000
600,000
400,000
5,000,000

Numerators

A
B
C
Total

Property
24,000
-
36,000
60,000

Payroll
14,000
-
26,000
40,000

Sales
150,000
450,000
400,000
1,000,000

Under the new method of computation, this result would follow:

A
B
C
Total

Payroll
4%
-
6%
10%

Property
3.5
-
6.5
10%

Sales
3.0
9
8
20%

Total
10.5%
9%
9%
40%

Average
3.5%
3%
3%
13 1/3%

Applied to income of $133,333.

A
3.5% X $1,000,000
=
35,000

B
3% X $1,000,000
=
30,000

C
6.83 1/3% X $1,000,000
=
68,333

Total

=
$133,333

This method appears to produce a more accurate result than the relative factor method. If two or more corporations contribute to the earnings of the California income, the relative contributions of each is measured by the relationship of their California factors to the total factors of the group, rather than the ratio that the California factors bear to each other.

Last updated: 09/24/2025