FTB,(46) a Superior Court held that California's interest offset statute violates the Due Process, Commerce and Equal Protection Clauses, because it requires a dollar-for-dollar offset of otherwise deductible interest expenses with
nontaxable dividend income of foreign corporations.
Recommendation: Permit taxpayers electing the 100 percent dividends-received deduction under section 243(a)(3) to attach a statement to its consolidated return reporting the distribution of a
nontaxable dividend and to supply additional information upon audit, if necessary.
We delete any distributions that contain both taxable and
nontaxable dividends. We also exclude distributions that are combined with cash dividends or rights issues.
& Tax Code Section 24425 and precedents mandated the disallowance of expenses allocable to
nontaxable dividends before income allocation or apportionment.
Secondly, it is a boon to smaller public businesses whose owners can now pay themselves
nontaxable dividends and cancel taxable salaries.
1995) (the tax is "exactly the same amount" whether
nontaxable dividends are treated as taxable income or are applied against interest expense).
