Monday, May 4, 2026
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Court of Appeal:
Texas Remote Doctor Is Not ‘Unitary’ Entity for Tax Purposes
Opinion Says Judge Erred in Finding That Radiologist Who Agreed to Analyze Scans From Across State Lines Is on Hook for California Taxes Under Doctrine Aimed at Multistate Businesses With Unified Structures
By Kimber Cooley, associate editor
Div. Three of the First District Court of Appeal held Friday that a trial judge erred in finding that a Texas-based radiologist, who contracted with a San Diego-based company to analyze imaging studies generated in multiple states at his Houston-area home, is on the hook for California taxes as a “a sole proprietorship which carries on a unitary business…within and without the state” under §17951-4(c) of Title 18 of the Code of Regulations.
That section provides, in relevant part, that “[i]f a nonresident’s business…is a sole proprietorship which carries on a unitary business…within and without the state, the amount of net income derived from sources within this state shall be determined” by looking to “the amount of…business income derived from sources within this state.”
Justice Victor Rodríguez authored Friday’s opinion, joined in by Acting Presiding Justice Carin T. Fujisaki and Justice Ioana Petrou. Saying that “unitary business” has long been recognized to mean multiple entities that share common ownership and revenue, Rodríguez opined that the Texas doctor “is operating—at most—a sole proprietorship engaging in one business activity.”
Request for Filing
The dispute erupted after the California Franchise Tax Board requested that Dr. Xavier Garcia-Rojas, together with his wife, file a California tax return in July 2019. According to federal tax filings, he earned between $300,000 to $410,000 as an independent contractor performing services for the California company Stat Radiology Medical Corporation (“StatRad”) for the years 2018-20.
Under the terms of the governing agreement with StatRad, the company would send him imaging studies generated by medical facilities from multiple states, including California, for him to review and report on at his home in Spring, Texas. StatRad required him to obtain licensure to practice in 28 jurisdictions, and the company provided him with a phone number, California mailing address, e-mail, and malpractice insurance.
Garcia-Rojas purportedly paid approximately $48,000 in taxes, penalties, and interest to the California tax authority between 2019 and 2020. On April 17, 2020, he filed a refund claim, asserting that he did not owe anything to the state relating to his contract work for StatRad.
Complaint Filed
After the Franchise Tax Board failed to respond to his claim, he filed a complaint against the board in 2023, seeking a refund based on allegations that he had no California-sourced income.
On Nov. 25, 2024, San Francisco Superior Court Judge Richard B. Ulmer Jr. granted a defense motion for summary judgment, finding that the doctor’s income was properly taxed under §17951-4(c).
Rodríguez declared:
“We reverse, holding that the Board did not demonstrate Garcia-Rojas operated a unitary business so the court erred when it concluded the Board was entitled to judgment as a matter of law under regulation 17951-4(c). We express no opinion as to whether the Board can tax Garcia-Rojas under a different legal theory.”
Acknowledging that the Franchise Tax Board is authorized by law to tax non-residents on the gross income derived from in-state sources according to regulations setting forth allocation principles for determining what portion is attributable to California activities, the jurist pointed out that §17951-4(c) was adopted against this backdrop.
However, he remarked that “the Board did not cite any authority supporting its contention that a sole proprietor that engages in one business activity and receives compensation from one corporation—even when that corporation’s clients are found both in and outside of California—is a unitary business.”
Large Enterprises
Noting that the cases relied on by the board involved multinational banking enterprises, corporations with distribution centers across multiple states, and companies that are one of many subsidiaries of a united business operation, he said:
“Although [the board] cites various cases, none apply the unitary business theory to a single person or sole proprietorship engaging in one business activity.”
Declining to follow an opinion by the Office of Tax Appeals that found that a “self-employed screenplay writer” in Arizona was a unitary business subject to taxation in California under §17951-4(c), he commented that the decision “is not binding on this court” and “its reasoning is unconvincing.” He explained:
“[That decision] focused on the tests to determine whether two different businesses are unitary….[and] ignored that there must be separate business activities to unite.”
He concluded:
“The Board did not demonstrate that Garcia-Rojas operated a unitary business, and the trial court thus erred by granting summary judgment on that basis.”
The case is Garcia-Rojas v. Franchise Tax Board, A172054.
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