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).