I dissent.
The Merits
Defendant Franchise Tax Board concedes that during the income years here involved (1958, 1959 and 1960) plaintiff corporation properly deducted from its gross income, under the authority of section 24402 of the Revenue and Taxation Code,1 dividends which it had received from other California corporations and which had been declared from income which had been “included in the measure of the taxes imposed . . . upon the taxpayer declaring the dividends.” (§ 24402.)
In my view, the plain intent of section 24425 is that the expenses allocable to the dividends deductible under section 24402, should likewise be deductible, in order to avoid double taxation.
As this court has just reaffirmed in Safeway Stores, Inc. v. Franchise Tax Board, 3 Cal.3d 745, 749-750 [91 Cal.Rptr. 616, 478 P.2d 48] the purpose of the dividend deduction permitted under section 24402 (formerly § 8, subd. (h), of the Bank & Corp. Franchise Tax Act) is to avoid imposing the franchise tax more than once on the same income while it remains in the hands of corporations doing business in California *8and before it is paid out as a dividend' to the ultimate individual owner of shares in the last such corporation by which the income is received as a dividend. At that point the income will of course again be subject to tax if the individual shareholder to whom it is paid as a dividend is a California taxpayer.
Section 24425 is clearly intended, and should be construed, to give full effect to this established purpose of avoiding double taxation at the corporate level. Thus, although section 24402 specifies that a deductible dividend must have been paid from income included in the measure of the taxes imposed “upon the taxpayer declaring the dividends” (italics added), section 244252 in restricting otherwise deductible items refers more broadly to those allocable to income not included in the measure of the tax “imposed by this part.” (Italics added.) “This part” is the Bank and Corporation Tax Law. The same divergence between the broad reference to “this part” in the one section, and the narrow designation of the “taxpayer declaring the dividends” in the other section, appears in the predecessors to section 244253 and in the predecessors to section 24402.4 This consistency of language is clearly not a historical accident, but instead demonstrates the continuing intent of the Legislature that the same income not be subjected to taxation more than once in corporate hands. Inasmuch as the dividend income here involved was included in the measure of the tax imposed by “this part” when it was taxed in the hands of the corporations paying the dividends to plaintiff, plaintiff’s expenses allocable to such income did not fall within the section 24425 description of nondeductibe items.
Further confirmation of this obvious legislative intent is found in the provisions of Revenue and Taxation Code section 243445 limiting the deductibility of interest expense of a taxpayer whose income is derived *9from or attributable to sources both within and without California and so is determined by the allocation formula contained in section 25101 (formerly § 10 of the Bank & Corp. Franchise Tax Act). Section 24344, in subdivision (b), directs, first, that for such a taxpayer interest expense may be deducted in an amount equal to interest income subject to allocation by formula. Next, the balance of interest expense is deductible to the extent by which it exceeds interest and dividend income except dividends deductible under section 24402, not subject to formula allocation. Third, any remaining interest expense is to be “directly offset against interest and dividend income (except dividends deductible under . . . Section 24402) not subject to” formula allocation. (Italics added.) Thus section 24344 twice demonstrates in specific language the intent of the Legislature that otherwise deductible interest shall not be limited by offsets against or subtractions of dividends deductible under section 24402 because they were paid from income which had been included in the measure of the tax on the corporation which paid the dividends.
Security-First Nat. Bk. v. Franchise Tax Bd. (1961) 55 Cal.2d 407, 423-424 [11 Cal.Rptr. 269, 359 P.2d 625], relied upon by the majority, did not deal with expenses allocable to such deductible dividends, but instead with those incurred in producing certain gross income of cooperatives which had never previously been taxed by California.
It appears appropriate to note that it has been suggested that to permit corporations which receive dividends deductible under section 24402 to also deduct the expenses allocable to producing those dividends is to favor corporate taxpayers over individual taxpayers, as the latter are not ordinarily permitted to deduct expenses allocable to their nontaxed income. This suggestion loses sight of the fact that, as already mentioned, it is the ultimate individual shareholder (and taxpayer) who benefits from the avoidance of double taxation of income at the corporate level. The income from which the individual shareholder receives dividends is already taxed at least once before it reaches him, and is then subject to taxation a second time when he receives it. The individual taxpayer whose income from sources other than dividends is ordinarily taxed only once plainly has suffered from no discrimination in the respects that have been suggested here.
“Administrative Practice” of the Board
The majority opinion refers to our request of counsel for information as to the administrative practice of the Franchise Tax Board, and to coun*10sel’s stipulation that at least since the board prepared an interoffice memorandum on the subject in 1962, the board has disallowed expenses incurred in receiving dividends which have been deducted pursuant to section 24402. The reliance on the memorandum to support the majority’s opinion is a flagrant bootstrap operation.
1. The income years involved in this case are 1958, 1959 and 1960. Counsel’s stipulation is that the 1962 memorandum was prepared “in connection with the audit and proposed treatment in the Great Western Financial case now before the Court [italics added], and for the purpose of determining what the Franchise Tax Board action was to be in this case. [Italics added.]” In other words, the majority cite a board memorandum which states the board’s position in the actual case now being decided by this court, as indicative of “legislative acquiescence” in the board’s position and as an aid to our construction of the involved statutes. Obviously such a memorandum is entitled to no weight of any nature in ascertaining anything other than the views of the board itself—views which are similarly expounded in its briefs on appeal. Would the briefs support the majority’s suggestion of “legislative acquiescence” in the position of the board? Of course not.
2. Counsel likewise stipulated that the 1962 memorandum was “a confidential legal memorandum for its internal use only. . . .” (Italics added.) Thus it was not a published regulation which, even if it had antedated the present litigation, could have formed the basis for suggesting legislative acquiescence in the board’s views.
3. In any event and even if the board had shown an earlier long-standing administrative construction and practice covering at least some substantial portion of the more than 30 years since the 1937 enactment (Stats. 1937, ch. 836, p. 2329) of the predecessor to present section 25524 (subd. (d) of § 9 of the former Franchise Tax Act), the rule as declared by this court is that if “the administrative construction is erroneous, it does not govern the interpretation of the statute even though the statute is subsequently reenacted without change.” (Louis Stores, Inc. v. Department of Alcoholic Beverage Control (1962) 57 Cal.2d 749, 760 [15] [22 Cal.Rptr. 14, 371 P.2d 758] and citations.)
The judgment holding the expenses here at issue to be deductible should be affirmed.
McComb, J., concurred.
Respondent’s petition for a rehearing was denied March 3, 1971, and the judgment was modified to read as printed above. McComb, J., and Burke, J., were of the opinion that the petition should be granted.
All section references are to the Revenue and Taxation Code unless otherwise stated.
Section 24425 makes nondeductible any amount which is otherwise deductible but “which is allocable to . . . income not included in the measure of the tax imposed by this part [i.e., imposed by the Bank & Corp. Tax Law]. . . .” (Italics added.)
See subdivision (d) of section 9, added to the Franchise Tax Act, Statutes 1937, chapter 836, pages 2329-2330; subdivision (d) of section 8 of Corporation Income Tax Act, Statutes 1937, chapter 765, page 2188.
See subdivision (h) of section 7 of Corporation Income Tax Act, Statutes 1937, chapter 765, page 2187; subdivision (h) of section 8 of Franchise Tax Act, as amended Statutes 1939, chapter 1050, page 2942.
Section 24344: “(a) Except as limited by subsection (b), there shall be allowed as a deduction all interest paid or accrued during the income year on indebtedness of the taxpayer.
“(b) If income of the taxpayer is determined by the allocation formula contained in Section 25101, the interest deductible shall be an amount equal to interest income subject to allocation by formula, plus the amount, if any, by which the balance of interest expense exceeds interest and dividend income (except dividends deductible *9under the provisions of Section 24402) not subject to allocation by formula. Interest expense not included in the preceding sentence shall be directly offset against interest and dividend income (except dividends deductible under the provisions of Section 24402) not subject to allocation by formula.”