APPEAL from a judgment of the Superior Court of Los Angeles County, Irving S. Feffer, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC369808).
The opinion of the court was delivered by: Kitching J.
CERTIFIED FOR PUBLICATION
This appeal concerns the effect of Farmer Bros. Co. v. Franchise Tax Bd. (2003) 108 Cal.App.4th 976 (Farmer Bros.) on Revenue and Taxation Code section 24402.*fn1 Farmer Bros. held that section 24402 violated the commerce clause of the United States Constitution by allowing a tax deduction to a corporation which received a dividend declared from income of a corporation subject to California tax, while not allowing a tax deduction to a corporation receiving a dividend declared from income of a corporation not subject to California tax.
Plaintiff Abbott Laboratories (Abbott) owned a 50 percent interest in TAP Pharmaceutical Products, Inc. (TAP), part of whose income was subject to California tax and which declared a dividend. Based on Farmer Bros., defendant Franchise Tax Board (FTB) denied the dividends received deduction to Abbott, which paid the tax on the TAP dividend it received and sued FTB for a refund of that tax paid. Abbott appeals from an order dismissing its action after the trial court sustained the FTB's demurrer without leave to amend.
In this appeal Abbott proposes that this court rewrite section 24402, subdivision (a) to sever its invalid portion. We conclude that writing or reforming section 24402 in this manner would not be consistent with the enacting legislature's intent and would contradict the purpose of its enactment, and therefore it would be inappropriate for this court to rewrite or reform the statute. We affirm the sustaining of the demurrer without leave to amend and the order of dismissal.
FACTUAL AND PROCEDURAL HISTORY
On April 20, 2007, plaintiffs Abbott Laboratories, Abbott Laboratories, Inc., CMM Transportation, Inc., North Shore Properties, Inc. and Perclose, Inc. filed a complaint for refund of corporate franchise tax or income tax against defendant FTB, an agency of the State of California. Pursuant to the standard of review*fn2 of an order of dismissal entered following the sustaining of a demurrer, the facts alleged in the complaint are as follows.
Abbott Laboratories was and is a corporation organized and existing under the laws of the State of Illinois with its principal offices in the state of Illinois. Abbott Laboratories, Inc., CMM Transportation, Inc., North Shore Properties, Inc. and Perclose, Inc. were unitary subsidiaries of Abbott Laboratories included in its California tax returns and were corporations organized and existing under the laws of the State of Delaware.
During the 1999 and 2000 income years, Abbott manufactured and marketed pharmaceutical, nutritional, and medical products. Abbott timely filed California bank and corporation tax returns for the 1999 and 2000 income years.
At all times during the 1999 and 2000 income years, Abbott owned 50 percent of the outstanding common stock of TAP. Part of the income of TAP was subject to taxes imposed under section 23101 et seq., and part was not. Section 24402 limits the deduction for dividends received from other corporations based on the portion of the income of the dividend- paying corporation which was subject to tax imposed by the Revenue and Taxation Code. The complaint alleged that section 24402 facially discriminated against taxpayers such as Abbott, which owned stock in corporations doing business outside California, and that the previous taxation by California of income from which dividends are declared is what makes them eligible for total or partial deduction from income. The complaint alleged that the limitation on dividend deduction in section 24402 violates California and Federal due process clauses (U.S. Const., 14th Amend., § 1; Cal. Const., art. I, § 7), the commerce clause (U.S. Const., art. I, § 8, cl. 3), and the equal protection clause of the 14th Amendment to the United States Constitution.
The complaint alleged that Farmer Bros. Co., supra, 108 Cal.App.4th 976 held that the limitation of the section 24402 deduction to dividends from income on which California tax had been imposed violated the Commerce Clause and affirmed a decision ordering a refund based on full deduction of dividends, subject to ownership requirements in section 24402, subdivision (b).
Pursuant to Section 24402, for the 1999 and 2000 income years Abbott deducted amounts representing 80 percent of dividends received from TAP. The FTB denied said deductions and assessed additional tax, interest, and penalties. After exhausting its administrative remedies, Abbott paid the additional tax, interest, and penalties. The FTB denied Abbott's claim for refund and Abbott filed an action for tax refund.
The complaint alleged that by not allowing proper deduction for dividends, FTB illegally assessed and collected tax from Abbott for $715,735 in excess of Abbott's correct liability for 1999 and for $1,624,359 in excess of Abbott's correct liability for 2000. Abbott prayed for judgment in the amount of $2,340,094, plus interest paid, applicable penalties or such larger amount as provided by law, interest as provided by law, and such other relief (including, but not limited to, attorneys' fees) as the court found appropriate.
FTB demurred to the complaint, arguing, inter alia, that the Farmer Bros. holding that section 24402 was unconstitutional rendered that statute void, that section 24402 could not be reformed, and that statutory law required the FTB to disallow deductions under section 24402 after the Farmer Bros. decision.
Abbott's reply argued that California Supreme Court cases supported reformation of section 24402 by rewriting that statute to preserve its constitutionality and to preserve the deduction for dividends after eliminating the unconstitutional portions of section 24402.
On August 9, 2007, by minute order the trial court sustained the demurrer without leave to amend. The trial court's order stated that in light of the Farmer Bros. holding, Abbott could not state causes of action for tax refunds based on section 24402. Farmer Bros. held that the "dividends received deduction" of section 24402 violated the commerce clause of the U. S. Constitution by discriminating against corporations engaged in interstate commerce. The trial court stated that it would not depart from that precedent, which referred to the entire dividends received deduction scheme. The trial court refused to reform section 24402 because it could not "conclude with confidence that (i) it is possible to reform the statute in a manner that closely effectuates policy judgments clearly articulated by the enacting body, and (ii) the enacting body would have preferred such a reformed version of the statute to invalidation of the statute." (Citing Kopp v. Fair Pol. Practices Com. (1995) 11 Cal.4th 607, 670 (Kopp).)
By its formal order filed on October 5, 2007, the trial court dismissed the action with prejudice.
Abbott filed a timely notice of appeal.
Abbott claims on appeal that: 1. The trial court erroneously ruled that Farmers Bros. found section 24402 to be unconstitutional in its entirety; 2.The trial court erroneously failed to sever the unconstitutional limitation of the dividends received deduction from the valid provisions of section 24402; 3.Section 24402, and the ...