Comcast Loses California NBI and Non-Unitary Appeal: SBE Finds Comcast Unitary With QVC and MediaOne Termination Fee Business Income


On February 2, the California State Board of Equalization voted 3-2 against Comcast, holding that (1) Comcast was unitary with majority-owned QVC and (2) the fee Comcast received for a failed merger with MediaOne was apportionable business income. The appeal has been pending for a long time and the decision has been highly anticipated. The Board declined to make its decision a formal opinion and, therefore, it will not be precedential.

Unity with QVC

One issue before the Board was whether Comcast was unitary with QVC. Comcast is a cable television provider, while QVC's business is as a cable television channel that sells products. Through stock purchases, Comcast acquired 57.45 percent ownership of QVC. Various Comcast officers and board members then replaced various QVC officers and board members. However, the officers of QVC prior to Comcast's acquisition continued to manage QVC in the same manner as before the acquisition. Further, Comcast treated QVC as it did any other cable channel, not providing any preferential treatment to QVC.

The Board was presented with arguments applying the "three unities" test.4 The three unities include the vaguely defined concepts of unity of use and unity of operation. The Board was also presented with arguments applying the contribution or dependency test. After consulting with the Appeals Division during the hearing, the Board seemed to conclude that the two tests are alternative tests, and that a failure to establish the "three unities" was not dispositive. The Board generally acknowledged the lack of clarity on the law with regard to these tests. This led to substantial discussion and a general sense of unease toward finding a unitary relationship. Ultimately, the Board voted 3-2 in favor of the Franchise Tax Board, holding that the relationship was unitary.

The two Board members who voted for Comcast emphasized that Comcast did not give preferential treatment to QVC. The three Board members who voted against Comcast, however, heavily emphasized certain flows of value between the two companies, such as the ability to pay executives with options and overlapping board members. Those members cited the "contribution or dependency test."

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