The California Court of Appeal held that a Texas radiologist did not owe California personal income tax because it did not operate a unitary business in the state. During the years at issue, a medical corporation sent the Texas radiologist imaging studies collected at medical facilities in other states, including California. He then read the images and submitted reports from his home to the medical corporation. Following a request from the Franchise Tax Board, the taxpayer filed California personal income tax returns and subsequently requested a refund. 

Under a California regulation, California apportions a nonresident’s income to the state if it operates a sole proprietorship that carries on a unitary business within and outside of California. The court concluded that the Board did not demonstrate that the taxpayer operated a unitary business. The Board could not cite authority supporting that a “sole proprietor that engages in one business activity and receives compensation from one corporation” is a unitary business. Per California’s “recognized meaning” of a unitary business, there must be “two or more business entities that are commonly owned and integrated in a way that transfers value among the affiliated entities.” However, the taxpayer here “operat[ed] – at most – a sole proprietorship engaging in one business activity.”

Garcia-Rojas v. Franchise Tax Board, Dkt. No. A172054 (Cal. Ct. App. May 1, 2026).