Mid-Atlantic Health Law TOPICS

In the winter issue of TOPICS, we discussed the income tax dispute between the California Franchise Tax Board (FTB) and Dr. Xavier Garcia-Rojas (Rojas). Rojas, a radiologist that works entirely from his home in Texas and never went to California, earned income through an independent contractor agreement that he signed with a California-based national radiology company.

The FTB invoked California’s “unitary business” tax doctrine (the Unitary Doctrine) to tax Rojas on the income from his patients that resided in California. To invoke the Unitary Doctrine, in which unitary business income is apportioned across multiple states and each state taxes its proportionate share of the total income, the FTB determined that Rojas was a sole proprietorship and that together, he and his sole proprietorship could be combined to constitute a unitary business.  

Rojas, on the other hand, argued that California cannot tax a non-resident merely because a client or patient of a taxpayer resides in California. Further, Rojas argued that the Unitary Doctrine has always been applied to multistate enterprises with more than one business segment, division or geographic location.

A trial court agreed with the FTB, and ruled that Rojas was subject to California tax. Rojas appealed that decision, and on May 1, 2026, the appeals court found that the FTB failed to prove that Rojas operated a unitary business, noting that Rojas was operating, at most, a sole proprietorship engaging in one business activity.

The appeals court did, however, state that it was expressing no opinion as to whether the FTB can tax Rojas under a different legal theory. So, Rojas’ dispute with California may not be over just yet.
 

Douglas T. Coats
410-576-4002 • dcoats@gfrlaw.com